Individuals who are over 70 ½ can use a special provision in the Internal Revenue Code to completely exclude from their income withdrawals from their IRA if those withdrawals are used to make charitable distributions. Many individuals traditionally use cash or checks to make charitable contributions. Many of those individuals use the standard deduction for their income tax return and thus might not receive a benefit for their charitable gifts.
Individuals over 70 ½ can direct their IRA administrator to have a portion of their IRA paid directly to a charity of their choice. This direct payment can be taken out of their annual required minimum distribution, but this charitable opportunity is not limited to the required minimum distribution amount. Due to a recent change in legislation, the age for required minimum distributions has been delayed until age 72, but the age to take advantage of an IRA direct charitable gift remains age 70 ½.
The amount transferred to charity is 100% excluded from taxable income, thus reducing both federal and Michigan income taxes. While individual circumstances may vary, financial planners and tax planners generally recommend that all charitable contributions for individuals over 70 ½ be paid from their IRAs. For specific instructions on how to have your charitable contributions paid from your IRA, contact your IRA administrator.