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Davis Brown Tax Law Blog

Tax Law Blog: IRA Charitable Rollover Extended - December 22, 2014

For some, the end of the calendar year means more than just the deadline for charitable contributions for the tax year. December 31 is also the deadline to take certain mandatory distributions from individual retirement accounts (IRAs).  Following recent action by Congress and President Obama, the IRA Charitable Rollover is once again an option that allows taxpayers to benefit charity, and satisfy their distribution requirements, a win-win for the taxpayer and the charity.

For individuals aged 70 1/2 or older, they are required to take distributions from their IRAs (called a required minimum distribution, or RMD) each year, generally by December 31. The amount of the RMD for 2014 is based on the account owner’s life expectancy as of December 31, 2014, and the account balance as of December 31, 2013.

Generally, that distribution is taxable income to the account owner. However, the charitable rollover has again been approved, offering another option for the RMD. Using a qualified charitable distribution, you can direct the custodian of your IRA to distribute up to $100,000 to a public charity of your choice, without having to count the distribution as taxable income. (The taxpayer does not get a charitable deduction, but since it was never counted as income, the taxpayer still benefits.) This can be a significant benefit for individuals, and particularly for individuals who do not itemize their deductions and therefore would otherwise not be able to take a charitable deduction.  

The IRA Charitable Rollover is one of the many “temporary” laws that were initially only for two years, but that Congress kept renewing, until Congress allowed it to expire at the end of 2013.  Up until last week, the charitable distribution was not an option for 2014.  But, keep in mind the current extension is only for the 2014 tax year; in other words, the ability to satisfy your 2015 RMD with a charitable rollover is questionable, and could be for some time.

Whether an individual is looking to use the recently extended charitable rollover distribution, or will take the distribution themselves, the December 31 deadline is quickly approaching.   The IRS website has more information on IRAs and RMDs, including a frequently asked questions section