Are You Age 70 1/2? - Year End Charitable Giving - Required Minimum Distributions from IRA

Nov 22, 2011

If you've reached age 70 ½ and are charitably-inclined, there are some little-known tax rules surrounding charitable distributions from individual retirement accounts (IRAs – excluding SEP and SIMPLE IRAs). The Qualified Charitable Distribution (“QCD”) provisions were renewed for 2011 and permit up to $100,000 to be excluded from your gross income and treated as a qualified charitable distribution for this year.

Why take advantage of this? This allows you to not only satisfy the annual required minimum distributions (RMDs) that an individual must otherwise receive from their IRAs for 2011, but also provides the following benefits.

Tax Savings - The amount is 100% excluded from your gross income. The lower gross income means that certain itemized deductions that are based on reported gross income are not impacted. For individuals that reside in states with an income tax (Massachusetts residents save 5.3%) the amount distributed may not be subject to the state income tax.  In addition, the distributions also reduce your taxable estate.

Medicare Part B Premiums - The lower reported income also allows an individual to potentially lower (or at least not increase) the premium charged for Medicare Part B Coverage.  The premiums are based upon your reported income with monthly rates that increase by approximately $60 depending on your reported income (or $720 annually for a single person or $1,440 for a married couple).

Pledges - Can be used to help satisfy a previously made charitable pledge

In order to qualify as a QCD, the IRA trustee must make the distribution directly to the qualified charity before December 31, 2011.

If you or your financial advisor have any questions, please call and ask to speak with a member of our tax department.