The IRA Charitable Rollover

IRA Charitable Rollover

While payroll taxes and budget cuts have dominated fiscal cliff talks over the past few months, an important Individual Retirement Arrangement (IRA) provision included in January’s fiscal cliff deal has slipped under the radar – the IRA Charitable Rollover.

What is the IRA Charitable Rollover provision?

The IRA charitable rollover allows individual taxpayers older than 70½ years to donate up to $100,000 to charities and ministries from their Traditional or ROTH IRA. This donation goes straight from the IRA to the charity – it is not first distributed to the IRA owner.

This provision is set to expire December 31st, 2013. 

What are the benefits of the IRA Charitable Rollover provision?

Traditional IRA owners age 70½ and older must take a required minimum distribution (RMD) from their IRA each year. With the IRA Charitable Rollover provision, donations made directly to a charity from a Traditional IRA can be used to satisfy this mandatory distribution. So if you must take an RMD this year, you can have some or all of it distributed directly to a qualifying charity.

Because the money goes directly to the charity, distributions made in this manner are not considered taxable income. Thus, by transferring part or all of your RMD to charity, you can effectively reduce your income tax while supporting your favorite ministries.

Traditional IRA owners under 70½ and ROTH IRA owners do not have to take an RMD, but can still use this provision to make a direct donation from their IRA to a charity without raising their taxable income.

How can the IRA Charitable Rollover help you?

Your IRA is meant to be a source of income for you during retirement, but that doesn’t mean it can only be used to pay for housing and medical bills; just because you’re retired doesn’t mean you can’t achieve your charitable goals and give to your favorite charities. If you have an IRA, consider using the IRA Charitable Rollover provision to reach your charitable goals.

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About Covenant Trust Company

Covenant Trust Company is a non-depository trust company that was chartered in Illinois in 1988. We strive to help our clients reach their financial and charitable goals through prudent asset management. Historically, we have served members and friends of the Evangelical Covenant Church (ECC), managing money for individuals and facilitating donations to Covenant ministries for over 30 years. Given the present challenges of the financial world, we recognize the rising need for a trusted financial services partner, and offer our services to everyone.

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