Walt Mozdzer, CFP®, CAP®, CEPA®

The Individual Retirement Account, or IRA, has become a staple of Americans saving for retirement. First established in 1974, the IRA gained in popularity through the 1980s and 90s and today, we find three basic types: the Traditional IRA, the Rollover IRA, and the Roth IRA. Traditional IRAs allow for tax-deductible contributions and tax-deferred growth. The Rollover IRA functions in the same manner as a Traditional IRA but initially is funded with money transferred in from an employer-sponsored retirement plan like a 401(k). Moreover, the simple premise that an individual can save for retirement in a tax-advantaged way applies to all three.

Traditional and Rollover IRAs defer the taxes on the growth of the account during the accumulation phase and apply taxes only when money is withdrawn. The Roth IRA accepts after-tax contributions, allows for tax-free growth of the investments, and provides tax-free income when the money is taken out.

There’s another key difference between a Traditional-deferred IRA and a tax-free IRA. The tax-deferred, or Traditional IRA, requires that some money be withdrawn beginning when the account holder turns age 70-1/2. The Roth IRA has no such provision.

Most people consider their IRA an investment vehicle which provides retirement income in their later years. But it also can serve as a charitable tool from which donations can be made on a tax-friendly basis.

IRA as a Charitable Giving Tool

Since regular IRA account holders must begin withdrawals at age 70-1/2 to satisfy their Required Minimum Distribution, or RMD, the government taxes the annual withdrawal as income. Therein lies a hidden opportunity. A couple of years ago, Congress enacted permanent legislation allowing direct donations to charities from an IRA while also satisfying RMD requirements. The most you can give from an IRA is $100,000 per year. Charitable donations can be made directly from an IRA custodian, such as Charles Schwab or TD Ameritrade and avoid recognizing income on the donor’s tax return. To make donation easier than ever, both Schwab and TD Ameritrade now offer checkbooks for their IRA holders.

However, you cannot perform a Charitable IRA Rollover and also deduct the donation on your tax return. That would be equivalent to taking a double tax deduction. However under current rules, Iowa residents can complete a Charitable IRA Rollover to a Designated Fund at the Community Foundation of Greater Des Moines and qualify for the 25% state tax credit under the Endow Iowa rules, as well as avoid both federal and state income taxes.

Charitable IRA Rollovers do not have to be an all-or-nothing transaction, either. Partial gifts can be made when some income is still necessary, as well as multiple gifts to more than one non-profit. For those donors who don’t need their RMD for regular income, it can become a terrific way to make major gifts to favored charities. By giving from an asset (IRA), spendable income can go up because charitable donations get shifted away from monthly living expenses.

There are other reasons to make donations from an IRA. It is possible to reduce Medicare Part B premiums, depending on where your income falls. In 2018 for example, if your Modified Adjusted Gross Income (MAGI) is less than $170,000 for a married couple, your Medicare premiums will be $134 per month instead of $187.50 if above $170,000. That is an annual savings of $1,284 per year. Keep in mind, Medicare uses income information from two years ago in setting your Medicare premiums for the current year.

Taking distributions from your IRA and claiming an offsetting charitable tax deduction is more difficult now because of the higher standard deductions ($12,000 single or $24,000 couple), and a deduction only affects Taxable Income, not MAGI. A Charitable IRA Rollover effectively allows for a deduction regardless of your other itemized deductions. For those in the lower income brackets even for a few years due to non-taxable income sources, a Charitable IRA Rollover can reduce even taxable Social Security income.

With a thorough understanding of the rules and a bit of proactive tax planning, a Charitable IRA Rollover can go a long way in meeting a donor’s giving needs and tax wishes. To learn more, contact your Foster Group financial advisor or make an appointment to meet with one.

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PLEASE NOTE LIMITATIONS: Please see Important Disclosure Information and the limitations of any ranking/recognitions, at A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at