Should you give to charity from your IRA?
Most retirees give to charity by writing a check from savings. If you have an IRA and give every year, is there a better way to do it?
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Often, yes. Once you are 70½, your IRA can send money straight to a charity, and that money is not taxed. It can also count toward your required withdrawal if it is done by December 31.
Writing a check is not the only way to give
Most retirees who give to church or charity do it the familiar way: take money out, then write a check. If you have an IRA, there may be a better way to make the same gift.
Giving straight from your IRA
Once you are 70½, the IRS lets your IRA send money directly to a charity. This is called a qualified charitable distribution, and the money sent this way is not taxed.
The key word is directly. The money has to go from your IRA to the charity, not to you first. It also has to go to a qualifying public charity, so gifts to a donor-advised fund or a private foundation do not count.
Why the check can cost you more
If you take the money out yourself and then write the check, that withdrawal is taxable income on your tax return. And if you take the standard deduction, as many retirees do, a large gift barely lowers your tax.
So the same gift can lead to two very different tax results:
- IRA to charity directly: the money sent to charity is not taxed.
- IRA to you, then a check to charity: the withdrawal is taxed, and the gift may do little to offset it.
Timing and your required withdrawal
If you give to charity anyway, sending the gift straight from your IRA usually means less tax. It can also count toward your required withdrawal for the year, as long as it is done by December 31. Required withdrawals generally start at age 73, so between 70½ and 73 you can give this way even before those withdrawals begin.
If you plan to give before year-end, it is worth setting up the transfer with your IRA custodian early so it is completed in time.
How we handle it
At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so your giving, your required withdrawals, and your tax return work together. That starts with retirement income planning in Crystal Lake, IL built around your tax return.
This article is general education, not tax, legal, or investment advice for your situation. Tax rules change, so talk with us before acting on it.