Special Tax-Free Charitable Distributions for IRA Owners

This post was last updated on February 16th, 2024 at 01:21 pm.

Churches that accept IRA donations may want to consult with their CPA or keep their attention on updates from the IRS about this IRS tax deduction. IRA charitable distributions became law in 2015 by Congress.

The following explanation from the IRS’ website should clarify.

This provision offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 72 or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable donation deduction on Schedule A, may be taken for the distributed amount.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible donation to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Please note: Icon Systems’ does not provide tax advice to any organization and recommends they review and discuss these issues with the appropriate professionals.