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IRA DONATIONS TO CHARITY - A TAX EFFICIENT WAY TO GO.

December 06, 2006

As you can tell by your stuffed mailbox, this is high season for charitable fund raising. Somewhere in your mailbox you are likely to find something telling you what a great deal it is to have your IRA give a bunch of money to charity. If you are charitably inclined, IRA gifts can be a great way to go, but not everybody qualifies.

HOW IT WORKS

If you are age 70 1/2 by December 31, 2006, you can have your IRA give up to $100,000 directly to charity without paying tax. This has a number of advantages over taking money out of the IRA yourself and then writing a check to the charity:

- It doesn't increase your "top line" income - your adjusted gross income, or AGI. Increasing your AGI has some unpleasant possible side effects, like increasing the taxable amount of your social security income and reducing your itemized deductions.

- Because the contribution goes directly to charity, it doesn't hit your return either as income or as a deduction. This keeps the contribution from bumping into the 50% of AGI limit that normally applies to charitable gifts.

Of course, this only makes sense if you plan on giving to charity in the first place, but if you do, this is a very tax-efficient way to go. But make arrangements now; you need to give your IRA trustee a little time to get the paperwork together.

This is an installment in our series on 2006 year-end tax planning. To see the whole series, click here.

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