New law affects charitable contributions from IRAs

What is a 70 ½ birthday? This is a good question.

I would call it an extension of the Mad Hatter’s version of an “un-birthday” from Alice inWonderland. When my dad first explained to me, the idea of 364 celebrations throughout the year, I was ready for my “un-birthday” parties to begin!

In estate and financial planning, 70 ½ is an important age and a new law delivers a possible benefit to those 70 ½ or older.

On Dec.18, President Obama signed into law legislation that made permanent the ability to make charitable donations directly from your IRA. In prior years the opportunity existed but was hard to plan for because the provisions were not permanent.

This new law only applies to those 70 ½. Let me explain how it can be beneficial.

If you own IRAs you must begin taking required minimum distributions at age 70 ½. Under the new law, if you are 70 ½ or older, you can make a distribution from your IRA directly to a charity and count the contribution as part of your required minimum distribution.

This can be very beneficial.

When you begin taking the required minimum distributions from your IRA, you have to pay taxes on the amount you receive.

If you can have the money go directly from the IRA to a charity, the money coming from the IRA is not taxed. And, more importantly, it is not included in your Adjusted Gross Income.

Adjusted Gross Income as reported on your tax return affects many other determinations related to tax deductions, social security benefits and Medicarecalculations.

A lower Adjusted Gross Income is better. Using your IRA to make charitable contributions and counting these contributions from your IRA as your minimum required distribution, which you have to take at 70 ½, makes your Adjusted Gross Income lower and preserves other benefits and tax deductions.

In conclusion, if you are 70 ½ and have an IRA and make charitable contributions to your church or other charities, this new law is worth celebrating.

So go ahead and follow the Mad Hatter’s lead and have an “un-birthday” celebration for you or someone you know when turning 70 ½.