If you are 70½ or older you can donate from your IRA directly to the qualified organization (see below) of your choice — tax-free! This special IRA donation rule allows you to give up to $100,000 for each of 2012 and 2013. We call this the “Grin and Give Rule.”
Warning: You must act by January 31, 2013, if you want to use the rule for 2012 taxes. See 2012 Special Rule below.
Normally, when you take money out of your IRA, that money is taxable income to you. That’s fine, you say, you’ll just turn around and spend the money on your mortgage or give it to a charity — and get an offsetting deduction. But you might not get all or part of that deduction if, for example, you use the standard deduction or you itemize and your deductions get caught up in the phase-out rules.
Under the Grin and Give Rule, the money taken from the IRA is not taxable income to you. And you don’t have to worry about whether you use the standard deduction, itemize or face other deduction limits. Actually, if you were going to make a charitable deduction anyway, using the Grin and Give Rule could help you protect your other itemized deductions, and even save taxes on your social security. And, of course, the charity doesn’t have to pay any tax either.
In other words, turning your IRA distribution into an IRA donation makes your IRA distribution tax-free!
Qualified organizations: If the charity is listed in the SGO database, it is a “qualified organization” — check by going to the Find-a-Charity page. “Qualified organizations” include churches and government agencies, plus other organizations to which donations are deductible as charitable contributions — for a listing of these organizations see IRS Exempt Organizations Select Check.
More Details: The gift must be made directly from your IRA trustee to the charity (with one exception under the 2012 Special Rule). Be sure to obtain a written receipt from the charity to substantiate your donation. The Rule applies to many charities, but not all. This is a Federal income tax law; check whether the your state’s income tax laws have been conformed to include the extension. Consult your tax advisor. Don’t give away money you may need.
2012 Special Rule: The rule was included in the American Taxpayer Relief Act of 2012 passed by Congress at the very end of 2012. Given the timing, the rule also allows you to treat a donation made as late as January 31, 2013 as a 2012 transaction; if you use a January 2013 tax-free distribution for your 2012 taxes, be sure you don’t use it again for 2013.