For tax years 2006 through 2010, amounts up to $100,000 per year distributed directly to charitable organizations from an individual retirement plan, other than a Simplified Employee Pension (“SEP” IRA) or a Simple Retirement Account (“SIMPLE” IRA), on or after the date the participant attains the age of 70 1/2 are excluded from income. The exclusion does not apply to distributions made to Section 509(a)(3) supporting organizations or donor-advised funds. A donor is not allowed to claim an income tax charitable deduction for such distribution to charity, and doesn’t report the distribution as income, either.
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Tax Relief Act”) effectively extended this rule through 2011, and the American Taxpayer Relief Act of 2012 (“ATRA”) effectively extended this rule through 2013. Unfortunately, it has now lapsed.
Remember: Designating a charity as a beneficiary of your plan still makes excellent tax sense. Your family eventually pays income taxes on the inherited IRA as they withdraw it, but the charities get 100%. So for those looking to benefit charity, start with the retirement plans.