How Your IRA Funds Can Make a Big Difference in the World


Seniors in the fortunate situation of having most of their financial needs met, and one monthly payment to their senior community or Continuing Care Retirement Community, often have discretionary funds in their individual retirement account (IRA). If this is the situation, you’re in a very good spot. But it can also create some challenges and questions as to what to do with this money if you pass on.

In general, IRAs are imminently taxable if there is money remaining in one after you die. They can be taxed as part of the estate and again as income on the tax returns of your heirs. Any withdrawals from an IRA while you are still living were also subject to income tax, until recently. Of course, the taxes would be offset to a degree by a charitable deduction, but charitable deductions only go so far, and claiming large deductions for charity donations are a red flag for the IRS when it comes to choosing individuals and businesses for an audit.

The best thing to do with IRA funds, previously? Wait until you die and donate the funds to a public charity to avoid anyone paying taxes on them. But new laws make it possible for seniors 70.5 years of age and older to enjoy seeing their donated IRA funds put to good use while they are still living. Individuals can now donate funds up to $100,000 ($100,000 each for married couples if they donate from two separate IRAs) directly to public charities tax free. But there’s not much time to make the decision to donate. The code is only in effect through 2013.

What You Should Know about the Tax Law
Here are a few things you need to know before you make the decision to donate.

  • Donations of more than $100,000 will be subject to income tax, and those taxes can be defrayed by charitable deductions.
  • Any donations may be taxable if the retirement account was funded with after-tax dollars.
  • Donors may not deduct the money as a charitable donation, because then they would be enjoying double tax benefits from the contribution.
  • Contributions must be made directly into the account of a public charity. Donations to private organizations are still taxable.
  • Check with your tax accountant or financial advisor for other things you should know before making a donation.

How Your Retirement Funds Can Help Others
Seniors have an opportunity to make a real difference in their communities through a non-taxable, IRA-funded contribution to a community foundation. Public community foundations support arts and culture, economic development in a region, education, the environment, health and human services, and more.

You can determine the area, or areas, where you’d like the money to be spent, and opt to make the donation anonymously or earn recognition for the donation, if you prefer. In addition, you can opt to have the community foundation establish a fund in your name, so your contribution of a certain amount will live on long after you are gone.

How Can You Donate?
If you’re interested in taking advantage of this tax benefit, and maintaining the freedom of determining how and where your IRA money will be spent, rather than you or your heirs paying up to 50 percent or more in taxes, the financial service or trust that holds your IRA can show you how.

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