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OPINIONS
Carolyn Bagby: Extension allows those over 701/2 to give from IRAs to charities tax free
In a somewhat unheralded act, Congress recently extended the 2006 legislation that allows citizens over age 701/2 to transfer up to $100,000 from their IRAs to their favorite charities tax-free.
This is an outstanding opportunity to withdraw funds from individual retirement accounts without paying taxes on them. This means that no current income tax will be due and no estate tax consequence will occur in the future.
At age 701/2, you are required to start taking minimum distributions from your IRA based upon your life expectancy. Many people who have large IRAs also have comfortable incomes from other sources: interest, dividends, other pensions and Social Security, for example. Often, the IRA distributions are not needed for living expenses. Actually, the IRA monies are added to the other income and are taxed at the highest rate for those taxpayers who are affected.
Not only is the minimization of income tax attractive, but the potential estate tax is a consideration. Funds left at death in IRAs are included in the estate, subject to estate tax on their value and taxable at ordinary income tax rates as they are withdrawn by your beneficiaries. Therefore, it seems to be a most attractive choice to use this windfall as a vehicle to benefit your favorite qualified charities.
This is a time-limited provision and at the present is in effect only for 2008 and 2009. How can this work for you? You direct your IRA trustee to make the contribution directly to the charity. The trustee sends the contribution to the charity. The charity furnishes you with written acknowledgment of your gift for your records. You do not take the contribution as a deduction on your income tax return, but best of all, you do not have to report the distribution as income. And, even better, it counts as all or part of your required minimum distribution for the year.
It's a win-win situation: great for you and great for the charity. You still have time to do this in 2008.
Carolyn J. Bagby is director of development at the Huntington Museum of Art.
