Congress has revived a law that lets you make charitable donations directly from your IRA that provides an opportunity for older adults to achieve significant tax advantages. The "IRA Charitable Rollover" was discontinued at the end of 2014; however, Congress has now resurrected it, made it permanent and made it retroactive to the beginning of 2015.
If you are over the age of 70-1/2, you are required to make minimum distributions each year from your IRA, and you have to pay income tax on those distributions. In contrast, the "IRA Charitable Rollover" law lets you transfer assets from your IRA to a charity, and the amount you transfer reduces the amount you are required to withdraw. For example, if you are required to withdraw $30,000 in 2016, but instead donate $30,000 to charity, you don't have to withdraw any funds for yourself, and you don't have to pay any income tax.
The only downside is that you won't be able to take a charitable deduction for the amount you donate in this way. However, donating directly from an IRA may be better than taking the distribution and then making a donation, because it results in a lower adjusted gross income – which can help you avoid taxes on Social Security benefits, reduce your Medicare premiums, limit the 3.8% surtax on investment income, and qualify for other deductions and credits.
In addition, donating from an IRA is definitely to your advantage if you otherwise wouldn't be eligible for a charitable deduction, either because you don't itemize your deductions or because you're subject to the charitable deduction "phase out" for higher-income taxpayers. To qualify, you must contact your plan custodian and have the custodian transfer the assets directly to the charity. If the custodian sends you the funds and then you give them to a charity, you will have to pay the income tax on the distribution and, depending on your circumstances, you may not be able to use the charitable deduction.
You can donate up to $100,000 to charity each year from an IRA. A married couple can donate up to $100,000 each, as long as each spouse contributes from his or her separate account.
This opportunity does not allow you to contribute to a private foundation or a donor-advised fund, and the tax break only applies to IRAs and not to 401(k)s, 403(b)s, Keoghs, profit-sharing plans, simple IRAs, SEPPs, etc.
While the tax break theoretically applies to Roth IRAs, there is much less of an advantage because Roth IRAs are not subject to minimum distribution rules.