If you have reached the age of 70% and have a regular Individual Retirement Account (“IRA”), then you already know the Internal Revenue Service (“IRS) does not allow you to keep funds in your regular IRA indefinitely, with the exception of Roth IRA’s. Roth IRA’s do not require withdrawals until after the death of the owner. If you are nearing the age of 70%, the Internal Revenue Code (“IRC) requires certain actions be taken.
You must take a Required Minimum Distribution (“RMD) from your regular IRA by April 1 of the year following the calendar year in which your reach 70%. You may take more than the minimum required by the IRC, but you cannot take less. The full amount of your withdrawal will be included as taxable income. Each subsequent year, you must withdraw your RMD by December 31.
If you fail to withdraw an RMD, fail to withdraw the full amount of the RMD or fail to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%. (For the year in which the full amount of the RMD is not taken, the account owner should file a Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other TaxFavored Accounts.
For those who are interested, you may take your RMD from your IRA and endorse it to a charity and receive a charitable deduction when you file your tax return.
When you received the RMD, you will receive a 1099-R to report the RMD as taxable income on your tax return. You can then give that money to charity and deduct it as a charitable contribution. Of course, you must have proof of the contribution, such as a cancelled check or credit card statement. You must also obtain a written acknowledgement from the charity for each deductible contribution of S250.00 or more.
Likewise, you may transfer funds from your IRA to an eligible charitable organization, though certain rules apply. These rules are:
-You (the owner of the IRA) are at least 70%.
-The maximum amount transferred to an eligible organization tax-free is $100,000.
-The IRA may exclude the distributed amounts from your income. You can claim this benefit regardless of whether you itemize your deductions. If you do exclude the contribution from your income, you cannot also deduct it as a charitable contribution on Schedule A, if you do itemize. O You can count your Contribution in determining whether you meet the IRAS RMD. O Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
The advantage of this option is that the qualified distribution to the charity will not be considered taxable income. The charity can receive the full amount and you, the taxpayer will not pay income tax on the distribution.
Each financial institution has their own forms and procedures relative to this. You should check with the financial institution before the end of the ear as to their procedures.
Although the provision had expired at the end of 2013, the new law was retroactive for 2014. This means any eligible QCD in 2014 will qualify. As for 2015, you will need to have your tax preparer or tax attorney check the current tax regulations before making contributions.