A friend of mine, Gina Williams, is a CPA. She knows her stuff. Following is an article she recently shared with me regarding a way some church members could save themselves some money. Thanks Gina for watching out for folks!
With the passage of The Pension Protection Act of 2006, taxpayers who are over age 70½ may now give money from their IRA directly to their church. In addition, there may be certain tax advantages to using this method because those distributions are not reported as income.
For example, Allan, age 82, usually gives to his local church. Because he does not itemize, he cannot receive a tax deduction for those contributions. However, if Allan makes a gift to his church directly from his IRA, that distribution will not be taxable to him. In this way, he is not only giving to his church, but he will also be saving taxes. Because the money distributed from his IRA went directly to the church, it is not considered as income to him. Assuming that the contribution is $3,000 and Allan is in the 15% tax bracket, his income tax savings would be approximately $450. If Allan were in the 25% tax bracket, his tax savings would be $750.
Individuals who do itemize may also be able to get a tax benefit by gifting directly from their IRA to their church. For example, Marsha, age 76, gives to her local church and itemizes. However, her personal exemptions and itemized deductions are “cut back” because of the amount of her adjusted gross income. If Marsha gives money directly from her IRA to her church, however, that distribution will not be included in her adjusted gross income, thereby minimizing or eliminating the reduction in her personal exemption and itemized deductions.
The following rules apply:
- If you are age 70 1/2 and older on the date of the transfer, you are eligible.
- The amount transferred from your IRA directly to a church or charitable organization is not taxed.
- The amount transferred counts toward your required minimum distribution for the year.
- Up to $100,000 may be transferred in both 2006 and 2007.
- These rules only apply to funds in your IRA accounts. The rules do not apply to funds in your 401(k)s or other qualified retirement plans.
- If you are over 70 ½ and would like to transfer money from your IRA to the church, contact the custodian of your IRA.
Gina Williams, CPA, CFP™