Thursday, November 3, 2011

2011 Transfers from an IRA to Charity

In The Upside of Gifts Made Directly From I.R.A.'s, the New York Times reminds us of some of the circumstances in which a taxpayer may want to benefit charity by effectuating a transfer of money directly from his or her individual retirement account to a charitable donee.  Through the end of this year, a taxpayer may arrange for such a transfer to charity in lieu of receiving a required minimum distribution from the IRA.  Such amounts transferred are not included in the taxpayer’s gross income.  Although the taxpayer cannot claim a charitable contributions deduction for the transfer, in some circumstances, a transfer from an IRA may nonetheless be advisable.  The article cites Robin Christian, a senior tax analyst for Thomson Reuters, who explains:    

A required minimum distribution raises the recipient’s income, which in turn limits some itemized deductions.   Medical expenses, for example, are deductible only to the extent they exceed 7.5 percent of adjusted gross income. A higher income may also put a taxpayer into a higher marginal bracket.  The I.R.A. gifts … are particularly beneficial to people in two groups, Ms. Christian said — those who did not itemize deductions and those for whom a gift from regular accounts would exceed the single-year deduction limit of 50 percent of adjusted gross income.

The story includes a caveat offered by Chris Zander of Evercore Wealth Management.  In the case of those who own outright highly appreciated shares of stock,

“It is better to contribute the highly appreciated stock to the charity in lieu of doing the charitable I.R.A. transfer.”  That avoids capital gains tax on the stock and allows for an income tax deduction for the fair market value of the assets contributed.


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