Direct Gifts to Charities Under the Tax Relief Act

The Tax Relief Act allows an individual who is 70.5 years old or older with an IRA to give a direct annual gift from the IRA of up to $100,000 to a qualifying charity. The Act provides a benefit by excluding the direct gift from the donor’s income for tax purposes, but it allows the gift to count toward satisfying the donor’s minimum required distribution.

The Act does not allow for a tax deduction for the direct gift because the donor’s income is not increased. Along with the age restriction stated above, other formalities include:

• Normally, the direct gift cannot come from a qualified retirement plan, a 403(b) plan, or, except in unusual situations, a Roth IRA.
• The $100,000 annual gift limit applies separately to a husband and wife if they have separate IRA accounts.
• The charity receiving the gift must be a qualified charity under the tax rules. Typically, donor-advised funds, private foundations, and supporting organizations may not receive direct gifts.
• The donor must follow the correct procedures, and the IRA trustee must make the payment to the charity directly.

Additionally, if a donor is from a state that imposes an income tax, he or she should verify that the direct gift is also excluded from his or her income for the state’s income tax purposes.

See Richard Sills, Tax Relief Act Extends IRA Owners’ Opportunity to Make Tax-Advantaged Direct Gifts to Charity, Wealth Strategies Journal, Mar. 2, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.