Seniors: Act Fast If You Want to Transfer IRA Assets Directly to Charity

Daniel B. Eagan and Brian D. Wodar

Philanthropic seniors in the US have only until the end of January to decide whether to make a tax-neutral transfer of up to $100,000 in IRA assets to the charity of their choice. For many, this could significantly lower their tax bill.

A patch in the American Taxpayers Relief Act of 2012 (ATRA) allows taxpayers who are at least 70.5 years old to take advantage of the so-called CARE Act in their 2012 tax filing if they withdrew the assets from their traditional individual retirement account (IRA) in December 2012 and complete the donation by the end of January 2013.

For many donors, the result would be better than the principal alternative—taking a taxable distribution from the IRA and making a tax-deductible donation to a charity—because the taxes due would be larger than the benefit of the tax deduction.

However, some donors would save more on their 2012 taxes by passing up on the CARE Act and contributing zero- or low-basis stock to the charity, instead.

Due to other changes in tax rates in ATRA, contributing zero- or low-basis stock may be a less attractive alternative in 2013 than in 2012. For many donors, this may make the use of the CARE Act the optimal choice for charitable giving in 2013.

As with most tax questions, there are several other factors to take into account before making a final decision, such as state tax rate, adjusted gross income level and the 3% phase-out of itemized deductions this year. Donors should consult tax counsel to determine the appropriate course of action. 

Bernstein does not give tax or legal advice. Taxpayers should consult professionals in those areas before making any decisions.

Daniel B. Eagan is Head of the Wealth Management Group at Bernstein Global Wealth Management, a unit of AllianceBernstein. Brian D. Wodar is a Director in the same group and the National Director of Non-Profit Advisory Services.

Daniel B. Eagan

Daniel B. Eagan is a Managing Director and the Head of Bernstein’s Wealth Management Group; he assumed his current role in 2011. A member of the Private Client Investment Policy Group, Eagan joined Bernstein in 2001 as a senior portfolio Manager; in 2003 he assumed the leadership of Bernstein’s private client practice in the Northwest. Prior to joining the firm, Eagan was a senior portfolio manager and managing director with BlackRock for seven years. From 1986 to 1994, he worked in investment consulting, most recently with Mercer Investment Consultants. Eagan earned a BS in finance from the University of Illinois and an MBA with distinction from DePaul University.

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