Act now to give IRA assets to charity
(MoneyWatch) A provision in the recently enacted "fiscal cliff" law could provide a significant tax benefit for seniors who want to donate part of their IRAs to charity. Of course, there's some fine print along with the benefit.
The American Taxpayer Relief Act reintroduced a provision that allows people who are required to take distributions from their IRAs to have their contribution instead go directly to charity, meaning they wouldn't have to pay taxes on it. This provision was originally enacted in the Pension Protection Act of 2006 and enabled from 2006 though 2011. Lawmakers had let it sunset for the 2012 tax year before reestablishing it last year and for 2013.
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Now, you may be wondering what good it does to have this tax benefit available for 2012 when the bill wasn't even signed into law until Jan. 2, 2013. But the cliff law provides a workaround. Seniors who took distributions in December can donate cash to a qualified charity by Jan. 31 and have that donation satisfy their distribution requirement for 2012, meaning they wouldn't owe taxes on it.
The rules for making similar donations in 2013 are just as they were under the Pension Protection Act. To avoid paying taxes on the donation, you have to have the distribution sent directly to the charity, rather than taking possession and donating the money yourself.
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