Financial advisors who are looking to decrease the tax drag of required minimum distributions should consider individual retirement account charitable rollovers, which allow for direct contributions to charities.

Although regular IRA distributions are taxed as income, charitable rollovers aren’t.

“Donating directly to charity is one way for people to use up their RMD without having a tax effect,” says Jeffrey M. Mutnik, a certified public accountant and director of taxation and financial services at Berkowitz Pollack Brandt with three offices in Florida.

Advisors need to stay up-to-date on this tax strategy because Congress still needs to re-extend the provision allowing IRA charitable rollovers this year.

IRA charitable rollovers permit those over 70 1/2 to contribute up to $100,000 of their RMD directly to public charities. Because the money is never actually distributed to the donor, it doesn’t show up as income.

The strategy works for clients who don’t require the distribution immediately.

“If I don’t need the money, and that IRA is sitting there, ultimately it will be taxable income to me or to my heirs. But I can donate that and not have to worry that I’m not picking up the income because that’s not money I’m looking to use,” Mutnik says.

“If I’m 71 years old, I have to take money out anyway,” he says.

Giving that money directly to a charity counts toward a RMD, “but it doesn’t become income to me,” Mutnik says.

Because the money goes directly from the IRA’s trustee to the charity, the donor doesn’t get tax deductions for the donation. But because the money is excluded from the donor’s income altogether, the individual escapes tax liability for the distribution’s full amount, so it isn’t subject to the restrictions and limitations on charitable, medical and other miscellaneous deductions.

Clients can get the tax break even if they don’t itemize, and they receive the entire tax benefit without the 50% charitable deduction limit on gross income.

At the same time, the distribution doesn’t increase adjusted gross income.

The largest negative is uncertainty over government extension of the rollovers, advisors say.

Originally part of the Pension Protection Act of 2006, the provision allowing the rollovers has lapsed and been renewed on a temporary basis by Congress five times.

“Congress passed it last year on Dec. 17, so you really only had 14 days to be able to do it,” says Michael Wagner, a CPA, certified financial planner, member and senior advisor of The Welch Group LLC in Birmingham, Ala. “Our clients usually go ahead and take the required minimum distribution before then -- we make sure that it gets out -- because the penalty not to take their RMD is so heavy, 50%.”

Last year’s extension expired on Jan. 1, and legislation to renew it is working its way through Congress. Especially with political upheaval on Capitol Hill, the outcome could be another 11th-hour nail-biter, despite bipartisan support.

Without the extension, clients who donate their RMDs will still be able to take regular deductions.

Paul Hechinger is a New York-based freelance writer.