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  • Writer's pictureIAP, LLC

Retirees-Take advantage of the charitable giving strategy

The Tax Cuts and Jobs Act of 2017 has extended an opportunity for tax savings for retirees over age 70 ½ with charitable intents.

The 2017 tax bill changed the way itemized deductions like charitable contributions are treated.  Before 2018 a married couple needed only about $13,000 of itemized deductions (charities, medical, real estate taxes, mortgage interest and miscellaneous deductions) to get a tax benefit. But that same threshold is now $26,600 for a joint couple over age 65.  Plus, the deduction for state and local taxes is limited to $10,000 and miscellaneous itemized deductions were essentially eliminated.

So, there’s a good chance retirees may not itemize their deductions for the foreseeable future.  But there is a terrific strategy to offset the loss of some of these deductions.

Retirees subject to Required Minimum Distributions (RMD) from IRAs can choose to make charitable contributions directly from their IRA, which offsets dollar for dollar their required minimum.  The result is a lower income to pay tax on, just as if the old law still existed.  The annual limit for this benefit is $100,000 payable to a charity.  Also, the contribution must be made directly to a qualified charity, not to a donor advised fund or private foundation.

It pays to plan ahead to make these contributions-most custodians require a signed form and then send the charity’s check to you to forward. So, you may not want to do this for every $25 or $50 contribution.  But certainly, it’s worth the effort for annual contributions to a charity of several hundred dollars or more.


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