The Advantages of a Tax-Free Transfer From an IRA to Charity

Besides benefiting the charity, you may save a bundle on income taxes, as well as stay below the income cutoff for some other taxes and charges.

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Question: I’m 70 ½ and need to start taking required minimum distributions from my retirement accounts. I know I can make a tax-free transfer from my IRA to charity and have that count as my RMD. But what’s the advantage of doing that versus withdrawing the money and making a charitable donation on my own? Assuming I itemize deductions, doesn’t it have the same effect?

Answer: If you itemize, the tax deduction looks the same—at first blush. But because the transfer, called a qualified charitable distribution, keeps your required minimum distribution out of your adjusted gross income, it can help you stay below the income cutoff for some other taxes and charges. (For people who don't itemize their deductions, making the tax-free transfer can help them benefit from their charitable gift.)

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Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.