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Charitable IRA Distributions

There is a small piece of good news in today's financial crisis. As part of the recent financial rescue package congress has renewed the charitable IRA distribution provision through 2009.

Charitable IRA distributions are back for 2008 and 2009. This philanthropic tax provision was first signed into law with the Pension Protection Act of 2006 and expired last year. However, Congress has temporarily reinstated the tax provision as part of the massive bail-out legislation signed into law on October 3, 2008 (H.R. 1424). The provision is retroactively extended through the end of 2009.

What exactly is a Charitable IRA Distribution? Basically, it allows you to distribute up to $100,000 to a charitable organization directly from your IRA account. As with any tax provision, there are several requirements you need to be aware of before taking action.

Applies only to IRA owners or beneficiaries that are 70 1/2 or older.
Only applies to direct transfers of IRA funds to charities and not gifts made to grant-making-foundations, donor advised funds, or charitable gift annuities.
No split interest gifts of any type will qualify.
For 2008 RMD's, gifts must be made by December 31, 2008.
Applies to traditional IRA's, Roth IRA's, and inactive SEP and Simple IRA's. It does NOT apply to any distributions from employer plans.
Listed below are several key benefits to a charitable IRA distribution.

Provides much needed funds so non-profit organiations can carry out their work.
The distribution can satisfy your "required minimum distribution" for the year.
It can allow you to reduce the principal in your IRA, thus, making future "required minimum distributions" from your IRA less.
ou can use the charitable distribution to satisfy a prior pledge without causing a prohibited transaction.
You pay less tax, because you do not have to include the required minimum distribution as income which could subject you to increased taxes on social security, loss of tax deductions, credits, and other tax benefits.
Example: If your 2008 RMD is $8,000 and you want to give $8,000 to a charity, then you should transfer (as a direct transfer) $8,000 from your IRA to the charity. That transfer satisfies your 2008 RMD. You do not have to include the $8,000 RMD as income (you also receive no tax deduction for the transfer to charity). The net result is that you will pay less tax than if you withdrew the IRA funds, included them in income and then donated the funds to charity and received a tax deduction.

If you already took your required minimum distribution for 2008, you can not undo it. However, if you want to give more to a charity, you can still transfer additional funds from your IRA.

If you have any questions about how to take advantage of this tax incentive, please give us a call at (405) 495-0100. Also, feel free to forward this information to anyone that might benefit from a Charitable IRA Distribution.