Steve Herman, attorney and friend of Grace, recently alerted us to another way we can give to Grace.
When you are aged 70½, you can reduce your income taxes, and perhaps your Medicare premium by donating to Grace directly from your IRA.
Starting in tax year 2018, the calculation of “taxable income” changed. Many individuals and couples no longer see their income tax bill reduced when they make charitable contributions. However, if you have a traditional IRA account and you are at least 70½ years old, you can make a charitable contribution directly from the IRA account and it will not increase your income. This will reduce both your federal and Arizona income taxes as compared to your taking the distribution yourself and then donating it to charity (unless you have enough “itemized deductions” to take the charitable contribution deduction). To make a contribution in this manner, you must contact the institution which holds your IRA account and have that institution make a check payable directly to the charity.
This method of making charitable contributions may also reduce your Medicare premium because that premium is based on your “modified adjusted gross income.” If you receive an IRA distribution, that distribution increases your “modified adjusted gross income,” even if you turn around and gift it to charity. On the other hand, if the IRA distribution is made directly to charity, it is not included in the calculation of “modified adjusted gross income.” This only impacts individuals with a “modified adjusted gross income” in excess of $87,000 and couples with modified adjusted gross income in excess of $174,000, but if it applies, it significantly increases your premium.
Note that because of legislation responding to the COVID-19 epidemic, you are not required to take any IRA distributions for 2020, but the normal required minimum distribution rules will apply in 2021.