Charitable IRA Distributions

The Pension Protection Act of 2006 allows you to make distributions directly from your IRA to one or more charities without the distributions being included in taxable income and subject to withholding. You must be 70½ or older at the time of the distribution.

Previously, withdrawals from IRAs for charitable gifts were taxable to the withdrawing donor. You are now able to make a tax-free gift by instructing the trustee of your IRA to transfer the withdrawal directly to the charity. Another benefit is that the funds transferred from your IRA to a charity count towards your mandatory withdrawal.

Making a charitable distribution from an IRA rather than from other assets is especially appropriate if you:

  • Do not itemize deductions;
  • Are already at the deduction limit for the year;
  • May lose some of your itemized deductions because of your income level, or
  • Are required to take distributions, but do not need them for living expenses.

This document is for information purposes only and should not be construed as legal, tax or financial advice. Please consult your tax or legal advisor for more information. Information provided courtesy of PG Calc.

Questions?

Please contact the Director of Development by phone, 574-284-5641 or emaildevelopment@cscsisters.org.

Example of Charitable IRA Distribution

Suppose Mary has $700,000 in an IRA and will be required to withdraw approximately $35,000 this year. Suppose also that Mary wants to contribute $10,000 to the Sisters of the Holy Cross. She can authorize the trustee of the IRA to transfer $10,000 to the sisters and $25,000 to herself. The $10,000 distributed to charity will not be subject to income tax.

Example provided courtesy of PG Calc.

Limitations on Charitable IRA Distribution

Certain limitations apply to these non-taxable charitable distributions from an IRA:

  • They cannot exceed a grand total of $100,000 per year.
  • They must be made to a public charity (not to a private foundation) and they cannot be made to a supporting organization or a donor advised fund.
  • The gifts cannot be used to establish a gift annuity or fund a charitable remainder trust.
  • Note: This document is for information purposes only and should not be construed as legal, tax or financial advice. Please consult your tax or legal advisor for more information.

Information provided courtesy of PG Calc.

Cautions: IRA Charitable Distributions

  • IRA Charitable Distributions are not advantageous for everyone. Contact your financial advisor to find out if this option will benefit you.
  • IRA Charitable Distributions do not qualify for charitable tax deductions. The tax advantage is that the withdrawal will not result in an income tax liability to you.
  • The rules are very clear that the donor cannot simply withdraw the funds and make the donation. It must be transferred from the trustee of the IRA directly to the charity, otherwise the donor will have an income tax liability.
  • Please let us know if you intend to make an IRA distribution to the Sisters of the Holy Cross. A quick phone call to our Development Office, 574-284-5641, or better yet a letter letting us know what to look for, will help ensure that we can identify your donation when it arrives, can issue you the required receipt, and use the funds for the purpose you intend. Sample letters are provided, right, for your convenience.
  • You must have a written receipt before you file your taxes.

Note: Check with your financial advisor for the latest information.