January 12, 2013

Looking for a way to reduce your 2012 income? Those who are older than 70 1/2 have an opportunity to make charitable contributions from their qualified individual retirement accounts and have it excluded from 2012 income. Here is what you need to know.

In Section 209 of the recently passed tax legislation there is a provision for qualified seniors to make a direct charitable contribution out of their qualified retirement account and have it count for 2012. The requirements are;

  1. You must be 70 ½ years old or older.
  2. You may only make the contribution from a qualified individual retirement account.
  3. You may treat any qualified charitable distribution made after Dec. 31, 2012 and before Feb. 1, 2013 as deemed to have been made on December 31, 2012.
  4. If you made a qualified distribution from an individual retirement account in December 2012, the amount is then transferred in cash to a qualified charitable organization prior to February 1, 2013 AND the distribution would meet the other direct contribution requirements you may exclude the distribution from your income.

Other things to know

  • There is a small window. If you want to take advantage of this 2012 tax opportunity you must do so by the end of January, 2013.
  • There is a limit. Remember this direct charitable contribution is limited to $100,000.
  • It must be done correctly. Talk to your plan's trustee to ensure your contribution is handled correctly.
  • What is the benefit? Instead of receiving an itemized deduction for your contribution, qualified direct contributions from your retirement account do not have to be claimed as income. This effectively allows you to receive 100% of the donation as an un-taxable event.

Please recall that this direct charitable contribution for seniors from their qualified retirement account originally expired in 2011. The direct contribution benefit is now extended through 2013.

Topic: Advice