The massive tax bill passed by Congress in December brought good news for many Individual Retirement Account (IRA) investors. It resurrected an expired provision that allows special charitable donations of IRA assets.
The provision allows taxpayers who are 70½ years or older to contribute a total of $100,000 in IRA assets to one or more qualified charities.
Qualified charities include schools, churches and public charities, but not private donor-advised funds or foundations. The contribution must pass directly from the IRA sponsor to the charity.
The good news is that the charitable contribution can satisfy your required minimal distribution so you don’t have to report the payout as income. In fact, it bypasses tax calculations altogether.
The bad news is that donating in this way means you get no tax deduction for your donation, which means it isn’t necessarily the most tax-efficient way to donate while you are alive.
One strategy is to donate appreciated assets such as a long-held stock during your lifetime and donate other assets such as IRAs after your death. Donating appreciated assets when you are alive allows you to qualify for a full-market-value deduction, allowing you to avoid capital gains tax on growth.
Your financial advisor, who is familiar with your individual financial circumstances and goals, can help you decide which strategy might be right for you.