afan wrote:Finally, remember that in the recent past one has been able to make charitable donations with IRA funds without realizing the income, or paying tax on it. If one were to do this, then the effective tax rate on the IRA would become zero.
This is not a tax rate of zero, because you lose the tax deduction; the only advantage is that the income never appears, so it doesn't affect other income-based limitations. For example, if you withdraw $10,000 from an IRA, then write a $10,000 check to charity, you have $10,000 of income and $10,000 of deductions, with no net tax effect, just as if you made a direct charitable distribution.
However, if you are in the phase-in range for Social Security taxation, then withdrawing $10,000 from the IRA (raising your adjusted gross income by $10,000) might make $8500 of Social Security taxable at 15%, leading to a tax cost of $1275. The direct charitable distribution (which expired in 2012 but might be reinstated) avoids this tax.
The real tax advantage is for stocks in a taxable account, because you can donate appreciated stock to a charity and not pay tax on the capital gains. If you paid $2000 for stock which is now worth $10,000, and you have held the stock more than a year, you can get $8800 out of the stock for your own use, paying $1200 tax. But if you donate that stock to a charity, the charity gets the full $10,000, and you get a $10,000 deduction.