Anything donated through a QCD also helps satisfy the annual required minimum distributions that must be taken from IRAs starting at age 70-1/2. IRA owners who do not need the distributions for living expenses could avoid generating tax liability by donating that way.

How To Donate

QCDs can be made to any non-profit organization from any IRA, but not from a simplified employee pension, simple retirement account or inherited IRA.

Instruct your IRA custodian to transfer from your IRA directly to the charity. Get an acknowledgment for tax purposes, just as you would with any other donation.

Depending on your taxable investments, however, donations from your IRA may not be the best solution.

Donating appreciated stocks could save even more money by being tax-deductible and avoiding capital gains taxes, said Michael Kitces, partner and director of research for Maryland-based Pinnacle Advisory Group.

"While it's appealing to make a pre-tax contribution directly from an IRA to a charity, the reality is that the 'double tax benefit' of donating appreciated securities to a charity is still superior for tax purposes," he said.

At least now with the QCD being permanent, retirees will have a choice, and not have to guess at what to do.

Last year, some financial planners and tax advisers advised clients to go ahead with direct donations even though the QCD had expired, on the assumption that it would be renewed. That turned out to be a smart move.

Other donors were left with only a couple weeks in December after the budget passed to take advantage of the reenacted opportunity. "This gives people certainty. They can start planning much earlier in the year rather than when Congress gets around to it," said Mike Jones, an estate planning expert at Thompson Jones LLP.

First « 1 2 » Next