IRA, Chartable gift question
I have a client that rolled his late wife’s 401K into his 401K and then we rolled it over into an IRA. The gentleman is 58 and wants to donate 10% of his newly founded IRA to his local church. My question is, if he gifts 10% will he have to pay taxes on the gift like a distribution but more importantly will there be a 10% penalty because he is not 591/2?
Permalink Submitted by Alan Spross on Tue, 2012-06-19 00:58
A bit of a problem here….a spousal inherited 401k cannot be rolled into the spouse’s own 401k. It must be rolled directly into either an inherited IRA or owned IRA. You need to re check if this is really what happened and/or how it happened. If this did happen, there is no set procedure to address it that I know of.
In any event, he does have IRA funds of his own. To donate some of these funds, he must take a taxable distribution and donate the proceeds. The 10% penalty will apply if he takes the distribution prior to age 59.5. If he is able to itemize deductions he can then take a charitable deduction for the contribution that may offset the taxesm but not the penalty.
Note:
1) Qualified charitable distributions in the form of direct transfers to the charity are only available to taxpayers who have reached 70.5 and then only if Congress extends the QCD for 2012.
2) If he had transferred his wife’s 401k into an inherited IRA instead of his own IRA, he could have taken a penalty free distribution from the inherited IRA, and then rolled it over to his own IRA after reaching 59.5
Permalink Submitted by Eric Woodfill on Tue, 2012-06-19 09:39
Thank you