In the recent passage of the Pension Protection of 2006 there is a special ruling for 2006 and 2007 that permits persons 70 1/2 and older to use up to $100,000 from their individual retirement accounts (IRAs) to make direct donations to the recognized 501-c-3 charities of their choice.

There are two benefits from this ruling. Contributions from the donor's IRA directed to the charity will not be taxed and will also be counted toward satisfying the donor's calculated Minimum Required Distribution amount for the year. This will especially benefit those donors who don't itemize their charitable contributions for income tax deductions.

How does it work? If your IRA is held with a mutual fund company, for example, you can request the company to send you an IRA checkbook on your IRA account. Then you can write a check to the charity for the amount that you wish to donate. For example, suppose your Minimum Required Distribution (MRD) is calculated to be $3,000 and you wish to write a check for $500 on your IRA account made payable to the charity. You would receive a credit of $500 toward satisfying your 2006 MRD requirement and you would pay income tax on only the remaining $2,500.

It is important to note that the donation has to go directly from your IRA fund to the charity. It cannot be released to you first with you then making the contribution to the charity.

This ruling can be a great way for seniors with IRAs to use Uncle Sam toward lowering the cost of their donations while increasing the amount they can give to their favorite charities.


Mason E. Scholl

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