Any distribution from an IRA (except Roth under certain conditions), IRA rollovers and retirement plans are fully taxable to the recipient in his or her highest tax bracket. This is especially troublesome to those over 70½ who must by law take a certain amount from their IRA accounts each year, whether they need the money or not, or face a large penalty. There is a way to avoid taxation and that is to have it contributed directly to a qualified charity, such as Animal Friends. This is true for any distribution up to $100,000.

So, for example, we'll use a retiree who has sufficient income and is required to withdraw $20,000 from his IRA under the federal required minimum distribution rules in 2007. He may likely be in a 25% top tax bracket. That means the $20,000 distribution will be taxed on top of his other income, all at 25%. So $5,000 of the $20,000 will have to be paid to the federal government. If instead he directs that $20,000 to be paid directly to Animal Friends from his IRA, no income tax will be due. The whole $20,000 will go to Animal Friends.

It is important to understand that those who use standard deductions are not otherwise able to deduct their charitable contributions. However, this technique allows for the deduction by converting otherwise taxable IRA distributions to a non-taxed charitable contribution. Anyone who is charitably inclined and uses standard deductions instead of itemizing needs to seriously consider this option.

This is a terrific way for individuals and couples to maximize the contribution to their favorite charities saving considerable taxation in the process. So call Animal Friends or your favorite charity(s) now to learn more on how you can help fund their cause and save taxes, as well.

But speed is important. This provision of the tax code is set to expire at the end of 2007, unless extended by Congress. Some experts believe it will be extended because of the significant benefits it affords taxpayers and charities. But, don't take a chance that it won't continue. Call Animal Friends or your charity now to see how you can benefit in the 2007 tax year.

This article is for informational purposes only and not intended as financial advice. Consult your financial advisor to determine what is appropriate for your situation.
Past performance is no guarantee of future results.

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