How to Avoid Taxes on Your IRA


How to Avoid Taxes on Your IRA

Watch for Congress to reinstate this break soon: Giving your IRA distribution to charity could allow you to skip the income tax.

Are charitable donations of IRA money permitted after tax years 2006 and 2007?

That provision expired but we still expect Congress to reinstate the break, retroactive to January 1, 2008.

If you could benefit from this move, consider waiting until later in the year to take your required minimum distributions, in case Congress does approve the law. You could always make a pledge to the charity now, contingent on Congress reinstating the tax-free direct transfer, then make the transfer after Congress acts.

Donating IRA money to a charity can be particularly helpful for retirees who need to take required minimum distributions from traditional IRAs that have increased significantly in value through the years -- and would owe a big income-tax bill on their withdrawals -- but don't need the money to live on. The contribution counts as your required distribution but isn't included in your adjusted gross income.

If you avoid the tax bill when you give away your IRA money, you can't double dip tax breaks and write off the charitable contribution, too. But you don't have to itemize to qualify, which could give retirees a tax benefit for charitable gifts even after they've paid off their homes and are taking the standard deduction -- if the law is reapproved.

For more information about IRA tax laws and withdrawal rules, see Everything You Need to Know About IRAs.

Got a question? Ask Kim at