Question on Charitable Contribution

[Idnar7]

My DW is making a large (5k) contribution to one of her pet charities. It is being sent directly from her IRA to the charity, so not a taxable event for us. Can we then still claim this a charitable deduction on our taxes? If so, this is a powerful tax planning tool. Without this deduction, we probably wouldn't be able to itemize this year, as I am over 65 with a higher standard deduction.

 

[kaudrey]

I believe you have to be over 70 1/2 to do a qualified charitable distribution from an IRA, based on what I've read. Is your wife over 70 1/2?


Someone please correct me if I am misinterpreting the rules.

 

[athena53]

If it's a Qualified Charitable Distribution, no, you can't. Still powerful because the $5k never shows up in your Adjusted Gross, which is the basis for all kinds of things including Medicare premium surcharges and some deductions. Caution: I'm not a CPA but I'm pretty sure I'm right. DH, age 89, does this.

 

[Idnar7]

KAudrey is correct. Firm replied to DW that they couldn't do it because she wasn't 70 1/2. So her 5k contribution will cost her $6250 with taxes. Thanks for replies.

 

[kaneohe]

If it's a Qualified Charitable Distribution, no, you can't. Still powerful because the $5k never shows up in your Adjusted Gross, which is the basis for all kinds of things including Medicare premium surcharges and some deductions. Caution: I'm not a CPA but I'm pretty sure I'm right. DH, age 89, does this.

And Athena is also right. Even if you could do the QCD, you don't get to double-dip, that is to both deduct the contribution and also leave it off your AGI. One or the other.......generally leaving it off your AGI is better for the reasons Athena lists.

 

[Gill]

KAudrey is correct. Firm replied to DW that they couldn't do it because she wasn't 70 1/2. So her 5k contribution will cost her $6250 with taxes. Thanks for replies.

How do you figure that? The $5,000 will be included in your income but you indicated this would enable you to itemize, so your taxes will be reduced by the amount by which your itemized deductions exceed the standard deduction.
Bruce

 

[Idnar7]

MBMiner, I mean't that they will be withholding 25% for taxes, so a $5,000 contribution will require a withdrawal of $6,250. And yes this contribution will enable us to itemize.

 

[Gill]

MBMiner, I mean't that they will be withholding 25% for taxes, so a $5,000 contribution will require a withdrawal of $6,250. And yes this contribution will enable us to itemize.

No they won't. Tell them not to withhold anything. You can have them withhold nothing or anything you wish.
Bruce

 

[OverThinkMuch]

A better alternative is to donate appreciated stock from a regular (non-retirement) account. Besides getting a deduction for $5,000 you also skip paying the long-term capital gains tax on the transferred shares. But it must be long term (held 366+ days), and you have to transfer the shares intact to the charity.

Charities might not be able to handle a donation of stock, but you can use a "Donor Advised Fund" from Schwab or Fidelity to do it. Those two companies have $5,000 minimums. It also lets you donate anonymously.

 

[pb4uski]

Just thinking... if you are donating appreciated stock have unutilized headroom under the top of the 15% tax bracket then you could sell the stock, pay 0% in capital gains tax and donate the proceeds to the charity and take the charitable deduction. Same end result as OverThinkMuch wrote but easier execution, particularly if the charity is unaccustomed to receiving donated stock.

With respect to the OP, it would at best be income tax neutral as the IRA distribution income would be offset by the charitable deduction but there might be ancillary issues and it might be a small negative if your itemized deductions before the contribution are less than the standard deduction.

 

[LOL!]

There is some confusion in this thread. Consider:

1. A QCD does not add the $5,000 to one's AGI, so it is not taxed. That is essentially a tax deduction. Yes, one must be 70.5 to do this and follow some other rules, too, BUT ….

2. Withdraw $5,000 from an IRA and use it to make a charitable contribution may also be deductible just as donating $5,000 from a checking account may be deductible. The difference between a QCD is subtle. First, one's AGI will go up which may affect tax credits and things like that. Second, for a donation like this to be deductible, one needs to itemize deductions on Schedule A which is really only worthwhile taxwise and useful if the sum of all deductions exceed the standard deduction. That is, the bar is lower for the case for a QCD.

3. Yes, if one has a taxable account, it is better to donate appreciated shares held long-term rather than cash if possible because then the long-term capital gains are not included in one's AGI. One get to deduct the fair market value of the donation as in #2.

 

[friar1610]

A better alternative is to donate appreciated stock from a regular (non-retirement) account. Besides getting a deduction for $5,000 you also skip paying the long-term capital gains tax on the transferred shares. But it must be long term (held 366+ days), and you have to transfer the shares intact to the charity.

Charities might not be able to handle a donation of stock, but you can use a "Donor Advised Fund" from Schwab or Fidelity to do it. Those two companies have $5,000 minimums. It also lets you donate anonymously.

+1

I use this technique every year to donate to my alma mater. They have a Vanguard account. I fill out a form I get off the VG web site and indicate how many dollars worth of what fund I want transferred to the college. I send that form to the college and they indicate they will accept the shares (you bet your a$$ they will!) and fill in info about the account to which they want the shares moved. They send the form to VG who makes it all happen. A few weeks later I get a nice thank you letter from the college which includes the tax info I need to take the deduction. A win-win situation.