Paul Meloan – Vested Interest

Charitable Contributions Directly From Your IRA

Most retired persons know that once they turn 70 & 1/2 years old they are required to make distributions from their qualified retirement plans (401k & IRAs, mostly). Some retired persons that age also know another important point. If they wish to make charitable contributions, they can do so directly from the IRA.

What Are The Advantages?

The traditional route is just writing a check, then deducting the gift on Schedule A of the tax return. Taking it directly from the IRA has several key advantages over the traditional route.

  1. If the gift goes directly from the IRA, it is a qualified distribution (towards your requirement amount) but is not included in gross income.
  2. Charitable deductions are only a benefit to taxpayers who itemize their deductions. With the new tax law effective in 2018, fewer people are itemizing their deductions. This way, a taxpayer gets the same tax benefit of a charitable gift but can still use the standard deduction if it’s higher.
  3. Other tax functions (like Medicare premiums) are a function of gross income, not taxable income. This method reduces the gross income in a way that may reduce other tax burdens.

One of the custodians we work with (Schwab) has taken this idea and run with it. Our clients with IRAs at Schwab can get a checkbook for their IRA. That allows them to make the contribution without any of the paperwork that usually accompanies an IRA distribution. The recipient organization may not even notice the money is coming from an IRA. Most could not care any less.

Are you or your relatives are lucky enough to take distributions from a retirement plan and have charitable intent? Writing a check from your IRA is a winning combination. Make it happen!

Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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