Yes, but you need to be over 70-1/2 and do it before the end of the year.  If you don’t need the income and have charitable contributions to make, don’t overlook this great way to kill two birds with one stone, called a Qualified Charitable Distribution (QCD).

The charitable IRA rollover is an ideal way to make a charitable contribution and fulfill the Required Minimum Distribution (RMD) for 2013. Not having to report the RMD as income is a huge tax benefit that is much better that taking a charitable tax deduction. The value here lies in your adjustable gross income (AGI). If money goes out of your IRA into your checking account and then you write a check to charity, you get a tax deduction, but the IRA distribution goes into your gross income. The deduction for the charitable gift reduces your taxable income, but not your adjusted gross income.

Several taxes are calculated from your AGI: Medicare premiums, medical expenses, taxability of social security benefits, phase-outs of personal deductions, and the surtax on investment income. When you make the gift directly from your IRA, these taxes are bypassed all together. All of those things are affected by adjusted gross income and you just bypass it by making a gift directly.

This technique helps not only high-income individuals, but also lower income individuals. If you are in a lower income tax bracket, you may benefit because it can reduce the taxation of your social security benefits. You may be able to use the standard deduction even though you’re getting the itemized deduction effectively by making a charitable gift.

Someone who has already taken his RMD for a particular year cannot use a QCD later in the year to fulfill his RMD requirement for that year; he cannot roll the already-taken RMD back into the IRA (to enable him to use a QCD instead) because RMD’s are not eligible rollover distributions.


Charitable Reminder

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.

Always consider gifting appreciated securities instead of cash, which is very tax inefficient. Gifting stock with a fair market value of $3,000 with a cost of $1,000 could save $300 in tax ($2,000 x 15%), plus you still receive a charitable deduction.

Andy partners with individuals, families and entreprenuers to provide objective and comprehensive financial planning. Andy is a Fee-Only, Certified Financial Planner™ and Registered Investment Advisor.