Taxes Blog

Finance Blogs » Taxes » IRA charity rollover running out

IRA charity rollover running out

By Kay Bell · Bankrate.com
Tuesday, December 13, 2011
Posted: 2 pm ET

Congress is caught up right now with the payroll tax issue. That is important. Unless the temporary 4.2 percent tax rate is extended, workers will get smaller paychecks in 2012.

But this legislative single-mindedness means that some other tax laws that also expire on Dec. 31 are falling by the wayside.

One of those tax breaks is the ability of older owners of traditional IRAs to transfer money from that retirement plan directly to a charity.

This is particularly beneficial for folks who are 70½ or older (the transfer option's eligibility age) and who don't need the required minimum distribution, also called RMD, money they must now withdraw.

They can have that RMD amount sent to their favorite nonprofit.

That way they meet the IRS demand that the funds be distributed, but since they don't actually take possession of the funds, they don't owe taxes on the money.

Charities also are thrilled with this option. Older donors can transfer as much as $100,000 to qualified charities. And folks who have that much in an IRA and can afford to give that much away usually are willing to do so.

Uncle Sam, however, is not so happy.

Since the IRA owner doesn't take possession of the money, it isn't taxable. So the U.S. Treasury loses some cash.

As lawmakers look at every way to collect every penny possible to reduce the federal deficit, it's possible that this donation option could die at the end of 2011.

Charities are lobbying to have it extended, but it's not a widely used option.

And just letting the IRA rollover to charity option lapse could be an easy way for Congress to raise a few more federal dollars.

We won't know the fate of these tax breaks (and others; more on them in future posts) for a few more weeks, when and if Congress gets around to dealing with the donation option and other expiring tax laws.

But for 2011, the tax break is still on the books. So if you're eligible to use it and it makes tax sense for you, look into the IRA charity rollover.

And for the rest of us who aren't quite that old, we still can give to charities the usual ways, via cash (or check or credit card) gifts or by donating household goods and clothing.

As long as we do so by Dec. 31, and we itemize, we can count those gifts as charitable deductions on our 2011 tax returns.

Stay on top of tax news and tips by subscribing to Bankrate's free Weekly Tax Tip newsletter. And get ready. In January, the Daily Tax Tip will return. Details coming soon on how you can also subscribe to that newsletter.

You also can follow me on Twitter at @taxtweet.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.