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Question

GOOD MORNING: I am doing some estate (tax) planning for myself and want to maximize contributions to my (6) favorite charities. I currently have an IRA and a 401K (TSP)which I plan to leave all or most of to charity. ********************************************************************** I have an option to set-up a "Charity Giving Fund" at Fidelity but if the tax rules are favorable to me, maybe I can by-pass Fidelity and their fees. *********************************************************************** I am now 66 (still working) and I understand @ 70 1/2 years I will have to take "mandatory" distributions from these accounts. I plan on working till age 70 or 71. I also believe that at 70 1/2 (mandatory distribution time),I can contribute directly from my combined IRA/401K to my charities and not pay any federal tax on the amount contributed but also don't get a federal tax charity,deduction on my return. Please advise.......................Thank-You

Submitted: 55 days and 20 hours ago.
Category: Tax
Value: $30
Status: CLOSED
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Country/State/Province of question: USA/PA

Posted by Bill 55 days and 18 hours ago.

Answer

Under current law, at age 70 1/2 or later you can have a distribution of up to $100,000 made from your IRA directly to a charity and it will not be considered taxable income for you. However, this exception expires this year year so if the exception is not extended it may not be available when you turn age 70 1/2.

 

If you itemize deductions, then you still could still benefit by making charitable contributions with IRA distributions by claiming the contributions on Schedule A. For example, if you withdraw $20,000 from your IRA and contribute it to a charity then the $20,000 will be included in your income but you could claim a charitable deduction on Schedule A. Depending on the amount of any other itemized deductions you may have (such as for real estate eductions, mortgage interest, state and local income taxes, etc.), the contribution may offset most or all of the additional income from the IRA distribution. However, in any one year charitable deductions are limited to 50% of your AGI (excesses can be carried forward for 5 years).

 

Assuming you are single, then your mandatory IRA distribution at age 70 1/2 will be approximately 3.7% of your prior year-end IRA value.

 

http://www.cof.org/files/Documents/Government/Charitable%20Reform%20Resource%20Center/08IRACharitableRollover.pdf

 

http://www.irs.gov/publications/p526/index.html

 

55 days and 17 hours ago.

Reply

Thanks for the feedback, I am married so what approximately would my % of the IRA/401 year end value be ? Thanks

Accepted Answer

As long as your spouse is not more than 10 years younger than you then the percentage that you are required to withdraw would be the same as for a single person. The percentage that you will have to withdraw increases each year after age 70 1/2. For example, at age 75 you would be required to withdraw 4.37% and at age 80 you would be required to withdraw 5.35%.

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Expert: Bill
Pos. Feedback: 99.6 %
Accepts: 
Answered: 9/27/2009

Enrolled Agent

EA, QPA, CHFC, CEBS, CLU - 29 years experience providing financial advice

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