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Stocks and IRA

If you’re 70½ years and older, you have an opportunity to donate funds from your individual retirement account (IRA) directly to CAT without incurring income tax on the IRA funds withdrawn.

IRA Holders Can Still Make Charitable Distributions (read below)

The IRA Charitable Transfer allows those who are 70½ years and older to direct up to $100,000 of their IRA to charity without those funds being counted as part of their income. So, while there is no charitable deduction for the funds transferred to the charity (because they’re not counted as part of your income), neither will the withdrawal raise the rate at which the rest of your income is taxed.

There is a hitch: according to the wording of the Pension Protection Act, it’s not enough that the transfer occurs during the year a person turns 70½. To qualify, the transfer must occur on, or after, the date you actually are 70½.  And, to take advantage of this opportunity, funds must be transferred directly to the charity without the donor taking possession of them at any time. Other restrictions apply. If you are interested in this opportunity to support CAT’s mission, please contact your tax advisor.

Options Abound for Donating Stock

If you are holding an investment because you believe it still has upside potential and do not want to sell it, consider donating the security to CAT and then re-purchasing it. By doing so you avoid paying capital gains tax on profits to-date and get a tax credit for the donation. You will also have “stepped up” the adjusted cost base of your investment, reducing capital gains and associated tax when you sell the investment.

If you own securities that have depreciated since purchase, consider triggering a capital loss by selling one or more “underperformers” and donating the cash proceeds to charity. With this strategy, you get a tax credit for the donation and you also generate a capital loss. This, in turn, can be used to offset other capital gains in the current year or in the past three years, or may be carried forward indefinitely.

In short, some advantages of donating stock are:

  • Receive an immediate charitable income tax deduction for the full value of your gift
  • Pay no capital gains tax (on assets held for more than a year)
  • Reduce adjusted gross “taxable” income

Please contact your tax advisor for specific details about donating stock to CAT.

IRA Holders Can Still Make 2010 Charitable Distributions

Note: The following discussion is provided for informational purposes only and is not intended to serve as legal or tax advice. For specific information about provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 affecting charitable contributions, consult your tax adviser or attorney.

Persons aged 70½ or older can again enjoy tax savings by making charitable gifts directly from their Individual Retirement Accounts (IRAs), thanks to a provision of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which was signed into law December 17, 2010. The act also allows charitable distributions made from an IRA in January 2011 to be declared as 2010 gifts, should the IRA holder wish to do so.

The December 17, 2010, law extends legislation originally adopted in 2006 and extended in 2008 (that extension expired December 31, 2009). For a charitable gift made from an Individual Retirement Account (IRA) not to be taxed as income, the following must be true:

  • the gift was made in 2010 or 2011;
  • the IRA holder is age 70½ or older;
  • the gift totals $100,000 or less each year;
  • the charity that received the gift is eligible to receive tax-deductible contributions;
  • the charity is not a section 509(a)(3) supporting organization; and
  • the withdrawal goes directly from the IRA to the charity.

The donor does not need to itemize his or her taxes to benefit from the distribution. If the donor does itemize, however, he or she cannot also take the distribution as a deduction.

Questions: contact CAT’s Communication & Development Manager at (503) 925-8903, ext. 257.