Don't Transfer IRA Distributions to Charity Yet

Can I give the required minimum distribution from my IRA tax-free to charity in 2012, as the law allowed last year? I’m trying to decide when to take my RMD this year and I don’t want to miss the opportunity to make the tax-free transfer to charity again, if it’s available.

The law permitting people over age 70½ to make tax-free transfers of up to $100,000 from an IRA to charity hasn’t been passed for 2012 yet, but typically Congress reauthorizes the tax break close to the end of the year. If you’re interested in giving some of the money to charity, wait until closer to the end of the year to take at least that part of your RMD. With the reauthorized break, the withdrawal would count as your required minimum distribution but would not increase your adjusted gross income.

You only qualify for the tax break (assuming it’s approved) if you transfer the money from your IRA directly to charity, so if you take the cash out of your IRA now and give it to charity later, you won’t get the break. You could take a tax deduction for the donation instead if you itemize, but the withdrawal would be added to your adjusted gross income first. Keeping the withdrawal out of your adjusted gross income will help you stay below the income limit for other tax breaks and avoid the Medicare high-income surcharge. It can also reduce the taxes on your Social Security benefits.

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For more information about RMDs, see Rules for Required IRA Distributions.

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.