We've all got problems as 2009, the year of the great recession, draws to a close.
Here are two more if you're 70½ or older and have an IRA:
A federal income tax rule, due to expire Dec. 31, lets you transfer as much as $100,000 from your Individual Retirement Account to a charity without counting it as taxable income.
The second tax law change, also to take place Dec. 31, would reduce the percentage of income you can deduct for charitable contributions to 28 percent from as high as 39 percent.
What's a would-be donor to do?
First, talk to a tax adviser to find out how such changes affect you.
The next step might be to talk to a community foundation, such as the Omaha Community Foundation, where you can park money you intend to donate — a sort of charitable nest egg — so you can take advantage of the current tax rules and give yourself time to make specific donation decisions.
“This is the giving season,” said Michael Leighton, president and CEO of the Omaha foundation.
He said the holidays put people in the donating mode. Tax issues that can be resolved through end-of-the-year charitable contributions enhance that tendency toward generosity.
Charities often get as much as three-fourths of their annual contributions during the last two months of the year, Leighton said.
People who may make charitable contributions need to watch for tax changes, he said, and there's no sign Congress or the Obama administration will consider extending the two provisions in the tax law.
Also, people who are 70½ or older probably will have to take some money out of their IRAs next year under the “required minimum distribution” rule. The requirement was suspended for this year so portfolio values could recover from the steep drop in the stock market. But the minimum-distribution requirement will return in 2010.
An accountant told Les Lawless of Omaha about the upcoming tax changes, and he talked with Leighton about shifting money from his IRA into his account at the Omaha Community Foundation.
Lawless, 73, is retired from the Anheuser-Busch distribution company he owned in Omaha, which he purchased in 1994 after selling a similar beer distribution business in Hastings, Neb.
Because he's the right age, Lawless can withdraw as much as $100,000 from his retirement account without counting it as taxable income. The contribution is known as a “charitable rollover,” even though it's actually a transfer.
And he can claim a deduction for the donation when he files his federal income taxes.
“It's a heck of a deal for me,” Lawless said. “When you can donate it without paying the taxes, it goes in dollar for dollar.”
If the law expires as expected, the same transfer next year would mean he would have to pay taxes on the withdrawn amount, since he put it into the IRA before taxes. Also, leaving it in the IRA isn't a good idea, because IRA money remaining after he and his wife die would be taxed at a high rate.
“You want to reduce it a bit,” Lawless said.
By putting money in the Omaha Community Foundation, he said, he can receive the tax benefit today and decide tomorrow what charities to support. He also can specify in his will that his four children make donations out of his foundation account.
“This is a great vehicle for me at this time in my life,” he said. “It's a simple way to do it.”
Contact the writer:
444-1080, steve.jordon@owh.com
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