Is transferring money from your IRA to K-State right for you?
The ability to transfer money tax-free from your IRA to contribute to a charity can be an excellent way to advance both your philanthropic and estate plans. While you will not receive a charitable deduction for a transfer from your IRA to a charity, the amount of your transfer will never be included in your gross income.
If any of the following apply to you, we encourage you to contact us, along with your financial and tax advisor, before the year’s end to help determine if this opportunity is appropriate for you.
• Do you have a large IRA that will be subject to estate taxes at death?
IRA assets are subject to estate taxes, and heirs may have to pay income taxes on IRA assets they inherit. Using the IRA Charitable Rollover permits an IRA holder to reduce the size of his or her estate, thereby reducing the total amount of taxes imposed.
• Do you take the standard deduction when calculating your taxes or do you itemize?
Many retirees take the standard deduction when calculating their income tax liability because they don’t generate enough deductible expenses or income to make itemizing worthwhile. As a result, they could be losing out on the tax advantages of deducting their charitable donations. An IRA holder who uses the tax free IRA Charitable Rollover as a way to make charitable contributions may be able to obtain the tax benefit of the contribution without having to itemize deductions.
• Are you collecting Social Security?
An IRA holder who collects Social Security is required to withdraw the required minimum distribution (RMD) from his or her IRA at age 70 1/2. The amount of the RMD could increase income to a level where a portion of your Social Security benefit is taxable. By using the IRA Charitable Rollover, the IRA holder may reduce total income and thereby reduce the taxes imposed on Social Security benefits.
• Are you interested in donating more than 50 percent of your annual income?
Donors who itemize their taxes are prohibited from deducting more than 50 percent of their adjusted gross income (AGI) for the purpose of making charitable donations. However, donations from an IRA are excluded from the percentage limit, allowing individuals who have reached the 50 percent threshold to give more.
• Did you wish to complete a gift to K-State for a particular purpose?
Charitable minded individuals may have in mind ambitious programs such as underwriting a research project or sponsoring a scholarship program, but are hampered from making any contributions by current tax laws such as the 50 percent AGI charitable contribution limitation for cash contributions discussed in the previous paragraph. The IRA Charitable Rollover may be an ideal strategy for an IRA holder to make a substantial donation in 2010 and 2011 and fulfill these charitable goals in a tax-advantaged manner.
• Do you live in a state with unfavorable tax rules for charitable deductions?
The ability to make a tax free transfer to charity from an IRA could be especially appealing to residents in states that impose state income tax on IRA distributions and don’t allow any offsetting charitable deductions. The act permits the IRA holder to make the charitable contribution directly to a qualified charity from his or her IRA and not have to treat the contribution as a taxable IRA distribution, thereby avoiding any state or local tax imposed on IRA distributions.
• What kinds of plans are eligible?
The tax exclusion applies to Traditional IRA's and Roth IRA's only. Other forms of retirement plans, such as 401(k), 403(b), defined benefits contribution, profit sharing plans, Keoghs and employer-sponsored SEP's and SIMPLE plans are not eligible. The gift must be to a public charity, and must be either outright or for a specific purpose. The gift cannot be made to a donor advised fund, life income arrangement, or supporting organization. The transfer is made directly from the IRA custodian to a charitable organization.
Contact us at 800-432-1578 to discuss the IRA Charitable Rollover and the many opportunities of how a gift to K-State may work for you. Please click here to request more information through our online form.