If you have a traditional IRA and you’re over age 70 ½, you know that there’s a minimum amount you’re required to withdraw from your account each year. If you don’t rely on IRA distributions to cover your living expenses, there are two drawbacks to these required distributions. They reduce the overall value and growth potential of your account, and they’re considered taxable income.
While there’s not much you can do about the first drawback, there is something you can do about the second: consider a charitable IRA rollover in place of this year’s Required Minimum Distribution (or at least a portion of it).
In order to qualify a charitable rollover has to be made by a taxpayer age 70 ½ or older, it has to go directly to an IRS-approved charity, and it can’t exceed $100,000. However, if these conditions are met, then you’ll have accomplished two things: you’ll have supported a worthy cause, and you’ll have reduced your taxable income.
The charitable rollover isn’t limited to traditional IRA holders. If you have a Roth IRA, you can also take advantage of the opportunity. Although there’s no RMD for a Roth, the rollover will still reduce your Adjusted Gross Income.
There is one catch: the provision of federal law that permits charitable IRA rollovers is scheduled to expire at the end of 2011. So, unless Congress acts to extend it the provision, you have a limited time to take advantage of it.