A Sure Way to Make a Gift from Your IRA


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August 2014

Many people have made charitable gifts through the IRA rollover legislation that was in effect from 2006-2013, but it has yet to be renewed by Congress for this year (though that still could happen). However, there is another, indirect way you can make a charitable gift not only from an IRA but from other retirement plans such as a 401(k) or 403(b). And even if the rollover legislation is renewed, this plan might be a better alternative for some people.

Example: Patrick has to withdraw money from his IRA this year, and he would like to make a $50,000 gift to our organization. Included in his individual brokerage account is stock worth $50,000 with a cost basis of only $10,000. Patrick contributes that stock to us. Then he takes the mandatory cash withdrawal from his IRA and uses $50,000 of it to repurchase the stock he contributed. Now the basis of that stock is stepped up to $50,000. If he sells it in the future when it is worth $70,000, he will be taxed on $20,000 rather than $60,000 of gain.

Alternatively, he could have purchased other stocks to rebalance his portfolio. Assuming he can deduct the entire stock contribution, the deduction will offset the tax on the IRA distribution, resulting in no net tax.

For many people the simple, direct charitable transfer from an IRA will be the preferred option if it continues to be available. That law allowed persons aged 70½ and older to authorize their IRA administrator to make a direct transfer from their IRA to one or more charities. The amount transferred (which cannot exceed $100,000) is not included in taxable income and counts towards the mandatory distribution requirement. The transaction is very simple and appeals to those who do not need all of the income from their IRA and would like to make charitable gifts.

But for others whose retirement funds may be in a plan other than an IRA, who own appreciated securities, and who may not yet be 70½, the alternative that is definitely available for 2014 could be better.

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Office of Planned Giving
The Metropolitan Opera
Lincoln Center
New York, New York 10023
Telephone: 212-870-7388
E-mail: encoresociety@metopera.org
Tax ID number: 13-1624087