If you are 70½ or older you can donate from your IRA directly to the qualified organization of your choice – tax-free! This special rule, originally passed by Congress in 2006, was extended in October 2008 (§205 of H.R. 1424, the Emergency Economic Stabilization Act of 2008). The extension applies to the 2008 and 2009 tax years, and allows you to give up to $100,000 each year. You could call this rule the “Grin and Give Rule.”
Normally, when you take money out of your IRA, that money is taxable income to you. That’s fine, you say, you’ll just turn around and spend the money on your mortgage or give it to a charity — and get an offsetting deduction. But you might not get all or part of that deduction if, for example, you use the standard deduction or you itemize and your deductions get caught up in the phase-out rules.
Under the Grin and Give Rule, the money taken from the IRA is not taxable income to you. And you don’t have to worry about whether you use the standard deduction, itemize or face other deduction limits. Actually, if you were going to make a charitable deduction anyway, using the Grin and Give Rule could help you protect your other itemized deductions, and even save taxes on your social security. And, of course, the charity doesn’t have to pay any tax either.
Cautions: Don’t give away money you may need. The gift must be made directly from your IRA trustee to the charity. Be sure to obtain a written receipt from the charity to substantiate your donation. The Rule applies many charities, but not all. At this moment, this is a Federal income tax law; check whether the California income tax laws have been conformed to include the extension.