Under current law, you can’t transfer IRA money to charity without paying taxes. Instead, you can name a charity as beneficiary of all or part of your IRA. At your death, that bequest will not be subject to estate or income tax. Recent regulations make it easier to name a charity as IRA beneficiary. Say you die with a $100,000 IRA and you’ve named a charity as 25 percent beneficiary while your children inherit the other 75 percent. The charity can be paid its $25,000 while your children can stretch out minimum distributions for the remaining $75,000 over their life expectancies, providing certain procedures are followed.
Lifetime gifts don’t enjoy the same tax shelter, though. If you give $25,000 to charity, from your IRA, that will be counted as a $25,000 distribution, subject to income tax and perhaps a 10 percent early-withdrawal penalty. If you pay $7,500 (30 percent) in income tax, only $17,500 would remain to be donated to charity. In that case, you’d get a $17,500 charitable deduction. Relief might be in sight, though. Congress is considering a law that would permit direct IRA-to-charity rollovers, while you’re alive.