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Ask Kim

Save on Taxes by Donating RMDs From Your Retirement Plan?

Congress usually waits until the last minute to approve the law allowing transfers of required minimum distributions from IRAs to charity. So stay nimble.

I’ve made a tax-free contribution of my required minimum distribution from my IRA to charity for the past few years and would like to do it again. Has this law been approved for 2014?

Use Our Calculator: What Is My IRA Required Minimum Distribution?

(Editor's note: The tax law was extended on December 17, permitting tax-free transfers from IRAs to charity for 2014.)

Not yet. For the past several years, people who are 70½ or older have been able to make a tax-free transfer of up to $100,000 from their IRAs to charity. Congress typically doesn’t approve the law until near the end of the year, and it hasn’t approved it for 2014 yet. If you’d like to make the transfer this year, hold off on taking your required minimum distribution until mid December, in case the law is passed. If Congress doesn’t act, you’ll still have plenty of time to take your required minimum distribution by the December 31 deadline.

For the past several years, such transfers counted as your required minimum distribution but weren’t taxable. The money isn’t included in your adjusted gross income, and that could help you avoid taxes on Social Security benefits or keep your income below the cutoff for the Medicare high-income surcharge (see What You’ll Pay for Medicare in 2015 for details about the surcharge). The transfer is a way to benefit from giving money to charity even if you don’t itemize and can’t deduct your contributions. (You can’t take a charitable deduction for the gift.)

If Congress hasn’t taken action by mid December, ask your IRA administrator how long you can wait to take your required minimum distribution and still meet the deadline. You don’t want to cut it too close; the penalty for not taking your RMD by December 31 is 50% of the amount you should have withdrawn.

Got a question? Ask Kim at askkim@kiplinger.com.