IRA charitable rollovers are less popular this year because distributions from IRAs aren’t required in 2009. Nevertheless, seniors in a low tax bracket might want to use an IRA charitable rollover anyway, to spare their beneficiaries a steep tax bill.
Suppose, for example, 72-year-old Alan Collins is in a low tax bracket. He makes charitable contributions every year but the tax deductions don’t save him very much, in his low bracket. His family may come out ahead if he makes his 2009 charitable contributions directly from his IRA rather than from other sources of cash. Such a direct contribution won’t generate a tax deduction but it also won’t generate taxable income for Alan.
Moreover, using IRA money for charity will reduce the amount in the IRA before it passes to Alan’s children, who are in high tax brackets. Thus, his children will owe less when they withdraw IRA funds.
Meanwhile, if Alan uses his IRA for donations, he can retain appreciated assets in his after-tax accounts. Eventually, such assets can pass to his children with a basis step-up, which means the children will owe no income tax on the appreciation during Alan’s lifetime.
