For those that have reached aged 70 ½ and are required to take a minimum distribution from your traditional IRA, you have the opportunity to make a charitable donation from your IRA, in lieu of your required minimum distribution. HOWEVER, YOU MUST ACT QUICKLY AS THIS OPPORTUNITY EXPIRES DECEMBER 31, 2011. Tax benefits include:
1) The distribution to the charity is not included in your adjusted gross income (AGI). Because it is not included in your AGI, it lowers the odds that you will be affected by various unfavorable AGI related rules—such as decreased itemized deductions, limited passive losses, and Social Security benefits becoming taxable.
2) It counts as your REQUIRED MINIMUM DISTRIBUTION (RMD). You can donate all or part of your 2011 RMD (up to $100,000) that you would otherwise be forced to receive and pay taxes.
3) If your traditional IRA consists of both deductible and non-deductible contributions which generally causes a distribution to be pro-rated between taxable and non-taxable, this distribution to the charity comes strictly from the taxable layer. Any nontaxable amounts remain in your IRA(s)—to be distributed tax free at some point in the future.
Requirements to qualify are as follows:
1) Must be distributed from an IRA AFTER you reach 70 ½.
2) Must be distributed DIRECTLY by the IRA trustee to an eligible IRS-approved charity.
3) Must meet the normal tax laws required to be a 100% deductible charitable donation.
4) It must be a distribution that would have otherwise been taxable, i.e. not a ROTH account.