The fiscal cliff has been addressed. Reading through the articles and summaries of the legislation last week, you might be led to think it only had to do with tax rates. However, as is most often the case, when you stop reading, you can miss out.

 

Possibly lost in the relief of finally having an answer to who will pay how much in taxes was a provision that reintroduced a donor’s ability to contribute a Required Minimum Distribution (RMD) to charity. The IRA charitable rollover, which expired at the end of 2011, was extended for an additional 13 months. The new period was defined with a retroactive start of December 2012 and an end date of December 2013.

 

To take advantage of this benefit, you must make the distribution directly from an IRA to a qualified charity. While this transaction will not be eligible for a charitable deduction, it will satisfy the RMD requirement, and the amount distributed will not count toward your adjusted gross income. There are a few other items that also need to be considered. First, this only applies to RMDs from IRA accounts. RMDs from other qualified plans (i.e. an old 401(k) that was never rolled into an IRA) are not allowed. Second, if you took your 2012 RMD in December, you can redirect that amount to a charity and avoid the 2012 tax. However, if you took your 2012 RMD prior to December, you will not be able to take advantage of the extended rule until you take your 2013 RMD. Finally, the maximum amount you can contribute is $100,000.

 

If you meet the qualifications (you require an RMD and are charitably motivated) then we suggest you have a discussion with your advisor about this opportunity. Everyone’s circumstances are a bit different so this might not be for everyone. Regardless, it is certainly worth your consideration if you now find yourself in the group that has been defined in the tax code as “high income”.