$100,000 IRA gift to charity – does it make sense?

Why IRA gifts are not the best option!

The Tax Relief Unemployment Insurance Act of 2010 allows people over seventy years and six months of age to donate up to $100,000 of IRA assets to charity.

This exemption sounds great on paper and many 501c institutions have mailed their potential donors to encourage the use of this tax benefit. But is this really the most effective way to give?

For donors with long term capital gain assets, the answer may be no. Consider the following example:

Donor has $100,000 of appreciated long term capital gains stock.

Donor purchased the stock for $10,000.

Donor has $100,000 in IRA not needed for retirement.

Scenario 1: Donor donates $100,000 from his IRA. No taxes are paid. Great. But the donor also loses the ability to take a tax deduction. When the long term capital gain asset is eventually sold, donor will be responsible for $22,500 in taxes (20% Federal & 5% State) leaving donor with $77,500 in cash.

Scenario 2: Donor donates $100,000 from his long term capital gain assets. He receives a $100,000 tax deduction. If donor takes $100,000 as a distribution from his IRA, it is taxable income. However, this taxable income will be offset by the gift of the $100,000 long term capital gain asset, leaving donor with $100,000 cash, not the $77,500 in scenario 1.

Gifts from IRA’s are useful. However, when there are other assets from which to give, it may be more advantageous from a tax perspective to gift the assets and keep your retirement money.

Learn more about our charitable strategies  and contact us at 617.225.2600.