Charitable deductions from your IRA; investments too good to be true

Q: What's behind the temporary change in the tax law that, for 2006 and 2007 tax years only, allows those age 70-1/2 and older to contribute directly to a charity from their IRAs? Two charities have sent me mailings urging gifts of this sort. They claim there is a "tax advantage," but I don't see it. The gift directly from the IRA to the charity counts as a required minimum distribution. But it isn't included in the IRA holder's reportable income, so it won't push one into a higher tax bracket. What's the point? You could deduct the gift on your 1040 anyway. If you're such a high earner that the gift deduction is phased out, you'd have your financial ducks in order already.
B.C., Concord, Mass.

A: The new law allows traditional IRA account holders to directly donate up to $100,000 to qualified charities for 2006 and 2007, says Donna LeValley, a tax attorney who co-wrote "J.K. Lasser's Your Income Tax 2007."

Like B.C., Ms. LeValley notes, many wonder what's the big deal? Don't you have to be rich to see a tax benefit?

Not exactly. The big incentive here is that the charitable donation from your IRA will satisfy your required minimum distribution. You won't have to pay tax on the amount of your required distribution that you give to charity. This can lower your income and maybe even cut down the tax you pay on Social Security income, not to mention the tax deductions, exemptions, and credits that are lost when your income increases. So, if you normally make donations anyway, you should now make those donations from your IRA and thereby reduce your taxable income.

This provision is especially good for those who do not itemize their deductions (those who take a standard deduction) and would not normally be able to deduct gifts to charity. By not having to report the income from the IRA distribution, LeValley says you effectively receive a deduction that would not otherwise have been available to you.

Q: What are HYIPs? How can they offer the kinds of returns advertised – 2 percent to 10 percent per month?
A.S., via e-mail

A: Certified financial planner Vince Clanton thinks somebody is trying to hustle you. "It appears to be another name for a scam," says Atlanta-based Mr. Clanton.

The best that could be said about something promising returns like this is "extremely highly speculative." The worst: outright fraud.

In general, Mr. Clanton advises that whenever you see something that makes promises that you think are too good to be true, you are probably right; it is too good to be true.