IRA Tax- Free Charitable Rollover
TAKE ADVANTAGE OF THE LAST GREAT TAX BREAK!
Help us help a child with your IRA using the Tax-Free Charitable IRA Rollover
The Tax Cuts and Jobs Act of 2017, lowered some tax rates and doubled the standard deduction for tax-payers. In doing so, it has significantly reduced the number of people who itemize their taxes, and many donors will be unable to use the charitable deduction. There is, however, an extraordinary opportunity to make tax–free charitable gifts from IRAs!
As of 2020 the IRS mandates that you begin taking money out of your IRA at age 72 which increases your taxable income and may even push you into a higher tax bracket. With many deductions being rendered useless, there are few ways to reduce that taxable income. One tax-smart idea is to direct your mandated distribution from your IRA to the Northwest Federal Credit Union Foundation to support at-promise children right here in Northern Virginia. Your gift will not be counted as income. The IRS will consider your required minimum distribution fulfilled and you may save thousands in higher taxes!
There are a few rules to follow to ensure your gift will qualify for the tax-free treatment:
- You must be 72 years old.
- The transfer from your IRA must be paid directly from your IRA to the Northwest Federal Credit Union Foundation.
- The gift cannot exceed $100,000. Married spouses can combine their gifts and contribute $200,000.
- The gift must be an outright gift.
Who can benefit?
Northwest Federal Credit Union Foundation donors who take Required Minimum Distributions (RMD).
Under this law a donor can use up to $100,000 of their RMD with a direct transfer to Northwest Federal Credit Union Foundation.
Example: John is 72 years old and is required by IRS law to take a $150,000 distribution from his IRA account on which he would pay a tax of approximately $52,500 when considering a 35% federal income tax bracket. He does not need the income as he has plenty of other sources. He is a supporter of the Northwest Federal Credit Union Foundation and after hearing about this provision in the law he asks his IRA administrator to send $100,000 to the Northwest Federal Credit Union Foundation and $50,000 to him. The result is he satisfied the IRS by taking his full required distribution, yet only paid a tax on the $50,000 he directly received. The remaining $100,000 was put to use providing food, warm clothing, school supplies and scholarships for at-promise young people in the Northern Virginia area!
There are now many donors who can no longer itemize their deductions. The new tax law increased the standard deduction and significantly reduced the number of people who itemize. By using the provisions in this law, up to $100,000 per person can be contributed from an IRA account. Gifts from IRA accounts satisfy the IRS rules on Required Minimum Distributions and are not counted as income.
Example: Mary has an adjusted gross income (AGI) of $150,000 and she usually gives $25,000 for charitable causes. She is now 72 and must take her first required minimum distribution of $25,000 from her IRA. Because she no longer itemizes her deductions this $25,000 will push her into an even higher income tax bracket. Mary feels her income is more than sufficient to meet her necessary expenses and to live comfortably. Instead of taking the RMD as additional income she instructs her IRA administrator to make a direct transfer to the NWFCU Foundation of $25,000. By doing so, she was able to satisfy the RMD rules, save money in income taxes and fund five scholarships for at-promise youth to pursue their dreams of a higher education!
Transfers of IRA gifts to donor advised funds, supporting organizations, charitable gift annuities, or charitable remainder trusts do not qualify.
Check with your advisor about the best ways to take advantage of this tax-saving strategy.
We are proud of the way we spend donor dollars. At the Northwest Federal Credit Union Foundation every penny we receive goes to support programs. The Northwest Federal Credit Union pays all staff salaries and overhead to ensure that we, and you, are giving 100% to the kids!