Part of your estate planning includes giving to charities and loved ones. Making your gifts while you're living allows you the enjoyment of giving and seeing your recipients benefit from them. Giving now also helps to reduce your estate so less of it is subject to high estate taxes. This retirement guide looks at some tax benefits associated with gifting now.
Retirement Guide Gifting Suggestion
Remember, in 2011 you can donate up to $13,000 per recipient per year without incurring any gift tax obligation. Any amount to person during the year in excess of this may be subject to gift tax when estate taxation is applied to your estate at your death.
Retirement Guide Charitable Deductions Recommendation
You always get an itemized deduction for charitable donations on your form 1040. But a tax advantage for you is to donate marketable securities that have appreciated in value. You get to take a deduction for their fair market value on the date of the gift. Recognize that if you sold them first, you'd have to pay tax out of your pocket on their gain, and therefore less to gift!
Of course, if the value of the marketable securities decreased from what you paid for them then don't donate them directly. Sell them first and then donate the proceeds. That way you can claim the capital loss on your taxes and the charitable deduction.
You can contribute an amount of charitable deductions that are itemized on your 1040 up to 30% of your adjusted gross income. And charitable deductions aren't diminished for AMT purposes.
Retirement Guide Charitable Contribution From your IRA
If your 70 ½ or older, you can make a tax-free direct rollover of up to $100,000 of your IRA to a charity during 2012. This '2006' benefit was extended through to 2009 and then Congress extended again through 2012. The amount you gift will also count toward your 2011 minimum required distribution. You can make a charitable rollover only to public charities but not to donor-advised funds or private foundations.
But in this case, you can't take an itemized deduction on your 1040 for this rollover contribution. However, it's not includible with any itemized charitable contributions so it won't affect the itemized deduction limitations of 30% of AGI.
Situations where such charitable rollover may be worth considering include where:
- your retirement distributions make up a large part of your taxable income,
- you're subject to a phase-out of itemized deductions
- you don't itemize deductions or itemize only for the purpose of obtaining charitable deductions, or
- your IRA distribution results in higher taxation of social security benefits.
Retirement Guide Estate Planning With Your IRA
Whether you want to give a charitable gift now from your IRA or if you have charitable desires at death, ALWAYS use IRA funds first for this purpose. If you leave IRA funds to a charity, they pay no tax and get the full use of the $1. If you leave an IRA $1 to your children, they pay tax and get to use say 70 cents. Therefore, you always want to give IRA dollars first to charities as your beneficiaries would prefer money (i.e. non-IRA cash) on which they don't need to pay income tax.
Use the tips in this retirement guide to make the most of your IRA for you and your beneficiaries.