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A Tax Tip from the National Society of Tax Professionals
There is a little known provision of the tax law that has only the year of 2007 left for its use. Congress can and has been known to extend these types of provisions in the law but there are no guarantees. The particular law serves to benefit certain senior citizens who are now 70 & 1/2 years old, have Traditional IRA accounts and are now required to take at least the Required Minimum Distribution.
There are a significant number of retirees who have provided well for themselves during retirement and perhaps put off taking distributions from their IRA’s. They did not need nor did they want to increase their taxable income unnecessarily. Now (at 70 & 1/2) they are facing the reality of having to comply with taking at least the Required Minimum Distribution (RMD). This represents taxable income.
Several negative things occur with this RMD. Taxable income increases; more of the Social Security Benefits are taxable; tax brackets are perhaps changed upward; if you itemize and benefit from medical expenses as a deduction, less of these will be deductible because of the increase to Adjusted Gross Income which impacts the 7.5% limitation on medical deductions upward. None of these are good, especially if you don’t need the money in the first place.
What can you do to alleviate the situation? Under the current provision of the tax law you can make a direct gift of the IRA, all or a portion of it, directly to a qualified charitable organization. The maximum amount contributed is limited to $100,000. By doing this, the amount distributed does not hit the taxpayer’s income tax return at all. It was a direct transfer from the custodian of the IRA to the charitable organization. Since the law is scheduled to expire on 12/31/2007, in order to receive the greatest benefit a gift of the entire IRA subject to the dollar limitation is suggested.
Perhaps you have more than one IRA. The gift counts toward the RMD for 2007 and future RMD’s will be smaller since they are calculated on a smaller base.
