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Tuesday, May 21, 2024
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IRA Charitable Rollover Can Be Big Help

For The Salvation Army, the holiday season kicks off with our annual Thanksgiving dinner at Golden Hall. We serve dinner to more than 1,000 men, women and children seeking a hot holiday meal and fellowship. Throughout the holidays we will provide food, toys, shelter and assistance.

The Salvation Army has been serving San Diego since 1887, and the demand for our help, which we provide throughout the year, has never been greater.

A recent article in The New York Times noted a Giving USA survey revealed, “While charitable giving rose slightly for all organizations in 2010, gifts to organizations that address basic human needs fell 6.6 percent.”

As the year draws to a close, we know that many people would like to help The Salvation Army. And in addition to making a donation to one of The Salvation Army’s Red Kettles, if you are at least 70-1/2 years old, you can help The Salvation Army (or another charitable organization) meet basic human needs by making an IRA Charitable Rollover. Congress has reauthorized legislation that allows donors to make charitable distributions from their IRA accounts during 2011 without incurring income tax on the withdrawal.

While you do not receive a charitable deduction for an IRA rollover, avoiding up to an additional $100,000 of taxable income may provide you with substantial income tax savings not otherwise available. The tax act expires on December 31, 2011 and currently will not be available for 2012, so now is the time to act and take advantage of this opportunity.

If you have held your IRAs for many years and have seen them grow substantially, they may well be the largest asset in your estate. You may rollover up to $100,000 for individuals and $200,000 for married couples. You may choose to designate multiple charities and you will pay zero tax on 100 percent of the amount of your rollover because it will not count toward your taxable income.

If your annual Required Minimum Distribution (RMD) amount is substantial, the IRA Rollover may be the perfect way for you to support your favorite charity and reduce your gross income at the same time. Since your RMD increases your adjusted gross income (AGI), items such as the taxable portion of your Social Security, certain passive losses, the deductible portion of medical expenses and your charitable contributions are directly affected. For example, medical expenses are deductible only to the extent that they exceed 7.5 percent of your AGI. Accordingly, the higher your AGI, the higher your medical expenses must be in order for them to be deductible. A higher income may also put you into a higher marginal tax bracket.

Because the rollover does not affect your tax return at all, rolling over your $100,000 RMD to a qualified charity provides a dollar-for-dollar benefit. You do not recognize the income, and you do not report the donation on your tax return. The added bonus is that the IRA charitable rollover qualifies for part or all of your 2011 RMD.

Planning Ahead

And, while you may have been considering using the amount of your RMD for this year as a charitable rollover, because this is likely to be the last year the IRA rollover will be permitted, you may wish to consider a larger rollover. This is a great way to reduce your taxable income from IRA distributions now and in years to come, especially if taxes increase in the near future.

I encourage you to contact your CPA or tax preparer for advice on what is best for your situation. If you decide to do an IRA Charitable Rollover, you should also make sure to consult with your IRA custodian to see if there are any special requirements necessary to complete the transaction.

Kirk A. Walwick, CPA, is a partner with Gatto, Pope & Walwick LLP, Certified Public Accountants. Kirk serves as chair of The Salvation Army’s Metropolitan Advisory Board. For information on making a gift or IRA Rollover, please contact The Salvation Army or your favorite charity.

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