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    Legislation renews IRA charity tax break

    Qualified charitable contributions for IRA owners over age 70½ now permanent

    Joel M. Blau, CFPThe Protecting Americans from Tax Hikes Act of 2015 was signed into law on Dec. 18, 2015. The law renews a long list of tax breaks known as “extenders” that have been expiring on an annual basis. This legislation makes some of the rules effective through Dec. 31, 2016. Others are effective through 2019, and some are effective permanently.

    Provisions in the Act also make changes to existing tax rules that were not part of the extenders. All of these changes will affect your tax planning now and in future years.

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    If you're over age 70½ and are required to take a minimum distribution from your IRA, you'll again have the option to make that distribution tax free by directing it to the charity of your choice. President Obama has signed a legislative package that included making permanent "qualified charitable distributions" (QCDs). The provision for tax-free distributions from IRAs to charities is now permanent. This break allows qualifying IRA owners to make a qualified distribution of up to $100,000 from the IRA to a charity. The transfer counts as a required minimum distribution yet is excluded from your gross income.

    Ronald J. Paprocki, JD, CFP, CHBCThese distributions can be a convenient way to support charitable causes and get a tax break while meeting tax requirements for IRAs. However, as with any change to the tax code, you must adhere to a number of criteria to ensure the tax savings.

    You should be well aware of the following:

    • A QCD permits annual direct transfers to a qualified charity up to $100,000 that can be excluded from taxable income, but still count toward satisfying the Required Minimum Distribution (RMD).
    • Funds distributed to the IRA owner first, no matter how briefly, then contributed to charity do not meet the criteria for a QCD.
    • Checks issued by the IRA custodian must be made payable to the charity, but can be mailed to the IRA owner to provide an opportunity to photocopy the check to maintain complete records (recommended).
    • Only IRA owners age 70½ and older can take advantage of making a QCD. The QCD must literally occur on or after the day the individual turns 70½ to meet the criteria.

    Next: The charitable entity must be an organization that qualifies for a charitable income tax deduction of an individual.

    Joel M. Blau, CFP
    Mr. Blau is chief executive officer of MEDIQUS Asset Advisors, Inc., in Chicago. He can be reached at 800-883-8555 or [email protected]
    Ronald J. Paprocki, JD, CFP, CHBC
    Mr. Paprocki is chief executive officer of MEDIQUS Asset Advisors, Inc. in Chicago.


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