GOSS: You can now be charitable with your required IRA distribution

In December, Congress passed an appropriations bill that may affect your charitable giving. This law makes it possible to donate IRA Required Minimum Distributions directly to charity. This is called a Qualified Charitable Distribution. If you're not sure how this works, here's a quick explanation.

If you own an Individual Retirement Account, or IRA, and reach age 70 and a half, you should get notices from companies that hold your IRA accounts, letting you know how much money you must take out. The RMD amount is based on two things, your account value at the end of the previous year and your age. The first time you have to take an RMD, you have until April 1 of the following year to take the distribution. From that point forward, you must take an RMD each year. If you are required to take an RMD and do not, there is a 50 percent IRS penalty.

Many people have to take these distributions and don't need the money. And these same people also donate to charity. Now they can contribute the RMD directly to a qualified charity. They will not get a deduction for the contribution, but they will also not have to pay tax on the distribution. As much as $100,000 can be directly transferred to a qualified charity, and this transfer will satisfy the RMD requirement. Any amount donated more than the $100,000 amount will be taxable. If you want to do this, it is very important that you do not take the distribution in cash, then donate the money. You will owe tax if you do this. This must be a direct transfer.

Before you initiate the transfer, make sure the charity is eligible for this tax treatment, and afterward, ask for acknowledgement for tax purposes. What about donating directly from a 401(k) or other employer-sponsored retirement plan? This is not allowed. However, you could roll money into an IRA, then make the transfer. But, you must be over age 70 and a half.

For those of you who are still working and contributing to an IRA, the IRA contribution limit for 2016 is the same as last year. The maximum amount you can contribute is $5,500 if you are younger than 50 and $6,500 if you are older than 50.

Sherri Goss is vice president of Rosenberg Financial Group, Inc.. You can reach her by calling 922-8100, or via emailing sherri@rfmoney.com.

This story was originally published February 16, 2016 at 6:53 PM with the headline "GOSS: You can now be charitable with your required IRA distribution ."