Tax-free withdrawals

There's a crack in the Internal Revenue Service tax code for the next two years and it's not just for the wealthy, but is a break for charities.

According to the "Your Money" column by Sandra Block in the Nov. 14 USA Today, the Pension Protection Act of 2006 was signed into law by President Bush in August and allows individuals 70 1/2 years or older to take tax-free withdrawals from their IRAs as long as the money goes directly to charity. For the withdrawal to be tax-free, each IRA owner must get documentation from their broker or financial IRA custodian to direct a tax-free rollover to a church or other charity (the IRA withdrawal check must go directly to the charity). Since all IRA holders over 70 1/2 must make an annual withdrawal each year anyway, this is an opportunity to avoid tax on the withdrawal and prepay the annual contribution to the church or other charity. The rollover amount would also avoid Alabama state tax. The deductions for charitable contributions are allowed under the Alternative Minimum Tax so the contributions won't come back to bite you at tax time. Since this new law was only signed in August many of the financial institutions may not be prepared for mass rollover applications, so IRA holders may have to seek assistance in the rollover process; and in this approaching season of giving, consider passing along some or all of the tax savings to churches or charity.

source: www.al.com

Other Usefull Tax Articles

Most Viewed Articles