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IRAs and Charitable Contributions |
New option for charitable giving
If you are age 70 1/2 or older, there is another option for you to consider when making charitable contributions. Beginning after December 31, 2005, you may be allowed to make a charitable contribution of up to $100,000 for 2006 and again in 2007, of distributions from your IRA. Although there is no charitable contribution deduction allowed,
you are not required to include the distribution in your income for the
year the donation is made. This option is limited and may not be the
best option for some taxpayers. First, the charitable contribution
distribution is only allowed in 2006 and 2007, with the maximum
contribution limited at $100,000. The taxpayer must be over the age of
701/2 and currently taking his or her required minimum distributions.
Only the distributions that are otherwise required to be included in
income are eligible for the charitable contribution distribution. The
distribution must be made to the charity by a trustee directly to the
charity. This means that a distribution that is made to the IRA owner
and then turned over to the charity, does not qualify.
Using this option to reduce the balance in your IRA can be a valuable
estate planning tool. The value of your IRA is required to be included
in your estate at death. Until 2009, estates with a value in excess of
$2 million are subject to estate tax. Contributing some of your IRA to
a charity while you are still living is an effective way to reduce your
taxable estate.
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