If you are 70.5 years of age or older and are considering making a donation to a charity, you should know that, as part of the last-minute tax changes, Congress retroactively extended the option of making the contribution from your IRA account for 2012 and for 2013 as well.

Due to the lateness of the extension for 2012, you are allowed to make a retroactive IRA to charity transfer for distributions made in December 2012, as long as the transfer is accomplished prior to February 1, 2013 and is made in cash. IRA to charity transfers for 2013 can be made at any time during 2013. However, you can elect to recharacterize distributions in January 2013 as made on December 31, 2012, as long as the distribution is transferred to the charity in January 2013.

This tax provision allows you to donate up to $100,000 to your favorite charity, provided it is an eligible charitable organization, tax free from your traditional IRA, Roth IRA, or a SEP or SIMPLE IRA. The distribution from the IRA to the charity must be made directly in order to be considered valid; it cannot pass through your hands or other accounts (except as noted above for the special transition rule due to the law’s late extension). Note: These distributions are not permitted from ongoing SEP or Simple Plans, i.e., plans to which a contribution has been made for the year.

The pertinent facts related to making a donation using this provision of the law are as follows:

  • The distribution is not taxable and does not add to your income for the year. The advantage is that your income remains low and helps to minimize taxable Social Security income and tax disadvantages associated with a higher income.
  • There is no charitable donation deduction, as the distribution is tax free. However, this factor can be a considerable benefit to taxpayers who take the standard deduction and do not itemize anyway.
  • If you have not already taken your required minimum distribution (RMD) for the year, the charitable distribution can count toward the year’s RMD. If you failed to take your RMD for 2012, using the retroactive transfer provision of the new law can help you retroactively meet your 2012 RMD requirement. However, you must act before February 1, 2013 in order to take advantage of this rule.

Please call this office for additional information related to this extended tax provision and how it might help your tax picture for 2012 or 2013.

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