New option for charitable giving
If you are age 70 1/2 or older, there is another option for you to consider when making charitable contributions. Beginning after December 31, 2005, you may be allowed to make a charitable contribution of up to $100,000 of distributions from your IRA. Although there is no charitable contribution deduction allowed,
you are not required to include the distribution in your income for the year the donation is made. This option is limited and may not be the best option for some taxpayers. First, the charitable contribution distribution is allowed from 2006 through 2013, with the maximum contribution limited at $100,000. The taxpayer must be over the age of 701/2 and currently taking his or her required minimum distributions. Only the distributions that are otherwise required to be included in income are eligible for the charitable contribution distribution. The distribution must be made to the charity by a trustee directly to the charity. This means that a distribution that is made to the IRA owner and then turned over to the charity, does not qualify.
Using this option to reduce the balance in your IRA can be a valuable estate planning tool. The value of your IRA is required to be included in your estate at death. Currently estates with a value in excess of $5 million are subject to estate tax. Contributing some of your IRA to a charity while you are still living is an effective way to reduce your taxable estate.