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Giving Smarter: Use Required IRA Distributions and Donor-Advised Funds to Give More

Take advantage of alternative funding sources to make your annual charitable gifts. Today, it’s easier than ever to make gifts from your IRA distributions or donor-advised funds, and in doing so, maximize your tax benefits while at the same time support a cause you care about.

Using IRA Distributions

New legislation offers an exciting tax break for retirees. Here’s how it works:
Retirees age 70 1/2 and older can donate up to $100,000 tax free from their IRA each year. This can be a huge benefit for retirees who are required to take an annual distribution from their IRA because IRA distributions are generally treated as taxable income. Under the new legislation, made permanent in the 2015 federal spending and tax package, those assets are excluded from income if the distribution is made directly to charity. The distribution is not included in your income so you avoid the potential negative consequences that regular IRA withdrawals in retirement can create, including taxes on Social Security benefits. In addition, instead of being limited to a lower percentage, as charitable contribution deductions normally are, distributions that are excluded from income are equivalent to a 100% deduction.

Once you turn 70 1/2, the IRS required you to take a minimum distribution from your IRA each year, regardless of whether or not you actually need that income, and these required withdrawals are subject to ordinary income taxes. By making a charitable contribution from your IRA, you can satisfy your required minimum distribution amount without reporting additional income. Make sure you speak with your tax and or financial adviser before making tax or investment decisions to see if donating IRA distributions is right for you.

Donor-Advised Funds

Many financial institutions offer ways for their clients to participate in charitable giving, and one of these ways is through donor-advised funds. These offer donors the convenience of making a single tax-deductible donation, then distributing those funds to the charities of their choice. It allow donors the ease of contributing things other than cash, such as real estate, appreciated securities and non-publicly traded assets. And, it offers donors the ability to grow their donations tax-free and distribute their funds to charities over time. All of this allows for the potential of a higher charitable impact. Ask your financial institution about their available donor-advised funds for more information, and as always, be sure to speak with your tax and or financial adviser before making tax or investment decisions.