DENVER -- Charitable rollovers were available last year to those who had reached aged 70 1/2, the age of required retirement account distributions. But this year, charitable rollovers aren't an option under current law. How should planners handle required distributions a client doesn't need?

The answer, says Georgia State University law professor Sam Donaldson, isn’t too difficult – but understanding all the issues can be time consuming, he told advisors in his presentation on estate and tax planning at the annual Schwab Impact conference.

When investors reach age 70 1/2, they must begin taking disbursements from their retirement accounts, whether they need the money or not. In 2013, investors could divert up to $100,000 from an IRA to charity, as long as it went directly to a 501c3 organization from the IRA. The donor got a sizable benefit: she could omit that donation from the adjusted income on her tax return.


But the law changed for 2014. A donor can do the same charitable rollover, but the resulting bonus is just a charitable deduction on her income tax, a benefit of substantially smaller value, Donaldson says.

Not only does the donor owe tax on the income, but the amount puts her in a higher tax bracket. That also means fewer allowable itemized deductions – such as the charitable donation she just made.

What’s the best advice? "Do a rollover, if the client doesn't need the money or the charitable deduction,” Donaldson says. If the law is changed, bringing back the old benefit for 2014, “you look like a genius,” he says. “Once in your career, you deserve to look like a genius, and this could be your moment."

If lawmakers don't bring the rule back, on the other hand, "the worst case is that at least the client still gets a charitable deduction, rather than being taxed on money that stays in the fund," he says.

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