Will Congress extend the law permitting people over age 70
1/2 to make tax-free transfers from an IRA to charity for 2012?
I've been waiting to take my required minimum distribution
because I'd like to give it to charity and avoid paying taxes on
the money. But I'm worried that if I wait too long, I'll miss the
December 31 deadline for taking my RMD, and I don't want to pay a
penalty. What should I do?
2013 Retirement Account Contribution Limits
The law, which allows tax-free transfers of up to $100,000 from
an IRA to charity -- has not yet been extended for 2012, but it
still could be approved. Congress typically waits until late
December to take action on this law, leaving people scrambling to
make the transfer in time to satisfy their
annual IRA minimum-distribution requirements
You can wait a bit longer, but don't wait too long. Even though
you technically have until December 31 to take your required
minimum distribution, it can take a while to complete the
transaction. Fidelity, for example, advises customers to take their
RMD by December 15, especially if they have any special requests,
such as asking to send the money to a charity or other third party.
(Fidelity requires that such requests be made in writing, with a
signature guaranty.) And many financial services providers
experience some of their highest call volumes during the last two
weeks of the year. If you need to sell stocks or mutual funds so
you can donate cash, you may want to do it soon so you're ready to
transfer it quickly; trade settlements can take up to three
Another option is to ask your IRA administrator if you can
transfer the money directly to the charity now and have the
transfer count toward your RMD, no matter what happens to the law.
That way, you make the RMD deadline and the transfer will be
tax-free if the law is extended. If the law isn't extended, your
1099 will report the transfer as a taxable distribution, but it
will still count for your RMD, and if you itemize deductions,
you'll be able to write off the money as a charitable contribution.
Note that under this scenario the distribution will be added to
your adjusted gross income, which could affect some other areas of
your finances � if, for example, the distribution makes
you subject to the high-income surcharge for Medicare Part B and
Part D premiums (see
Medicare Part B Premiums to Rise in 2013
) or takes you over the income limit to be eligible for certain tax
It's important to transfer the money directly -- if you withdraw
the funds from your IRA and then write a check to the charity, it
won't count as a tax-free transfer and will be added to your
adjusted gross income, even if the law is extended. Contact the
charity now to find out its procedures. The American Cancer
Society, for example, provides a sample letter that people can send
to their IRA administrators to initiate the rollover. Also give the
charity a heads-up that the money will be coming.
No matter what happens, be sure to make the required minimum
distribution by the December 31 deadline. Otherwise, you could have
to pay a steep penalty: 50% of the money you should have withdrawn.
(If Congress passes the extension very close to New Year's Eve, it
may offer a break on the penalty, but you can't count on that.)
Waiting past December 31 will also make it too late to write a
check to the charity and have it count for a 2012 deduction. For
more information about RMDs, see
Rules for Required IRA Distributions