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Giving Tuesday: How to donate to charity directly from your retirement account and save on taxes

Erin Arvedlund, The Philadelphia Inquirer on

Published in Business News

If you're the right age and plan to give to charity, here's one great way to amplify your gift.

Generally, those over 70 1/2 have until year's end to take required money out of their Individual Retirement Accounts. It's called required minimum distribution, and it must be taken.

Instead of withdrawing and paying income tax, however, you can send up to $100,000 untaxed directly to charity.

Many IRAs are eligible for these charitable donations -- including a traditional IRA, a rollover, an inherited IRA. Here are a few of the requirements:

You must be 70 1/2 or older.

The maximum annual dollar amount that qualifies for such a donation is $100,000. For couples filing taxes jointly, the spouse can also make a qualified donation from his or her own IRA within the same tax year, up to the $100,000 limit.

 

For the donation to count toward the current year's required minimum distribution, funds must come out of your IRA by Dec. 31.

What kinds of charities qualify? The charity must be a 501(c)(3) organization, eligible to receive tax-deductible contributions. Some charities do not qualify, such as private foundations and donor-advised funds.

There are two big victories with qualified charitable donations: You lower your overall taxable income -- adjusted gross income -- and the money you donate to charity directly is not taxed.

So should you do it? Jen Fox, president of wealth management at Bryn Mawr Trust, says she first does a cash-flow analysis with clients to determine whether to do the qualified charitable deduction and from which account.

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