Charitable IRA Rollovers

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There are many opportunities and tax advantages to potential donors from the extended Tax-Free Charitable IRA Rollover options.  This option provides an avenue for IRA holders to avoid treating withdrawals as taxable income and instead transfer the gift directly to a qualified public charity.

Certain facts regarding this provision:
• It is only available to donors who have reached the age of 70 1/2
• Up to a $100,000 rollover from an IRA can be made tax free when directly given to qualified public charities. Please note that to qualify individuals must instruct their IRA trustee to make the contribution directly to an eligible charitable organization –they cannot receive a distribution and then make the contribution on their own to get this treatment.
• It is only available until December 31, 2009 unless further extended by Congress
• A charitable IRA distribution can be used to satisfy a donor’s pledge
• It is important to communicate to donors that, although the rollover is not included in taxable income, there is no income tax deduction for the transfer
Advantages for the Not-for-Profit Organization include: 

A significant new source of funding is now available for charitable gifts.  The National Committee on Planned Giving conducted a survey of IRA distributions to Charity for the year ended December 31, 2007 (the first year that the provision was available).  Approximately 900 charitable organizations reported over 8,600 individual distributions, with a total value of more than $140 million.

Tax Advantages for your eligible donors include:

Donors who take the standard deduction and couldn’t specifically qualify to itemize deductions now get the “ equivalent “ of a charitable deduction for their rollover gift . It is estimated that approximately two-thirds of taxpayers take the standard deduction.  Now these taxpayers can get the equivalent of a deduction by making gifts of up to $100,000 directly from their IRA to qualified charities.  The equivalent of a deduction refers to not being taxed on that income.

Donors who lose itemized  tax deductions based on their income level:  The most common lost deductions is the 1% (in 2008 and 2009  phaseout of itemized deductions and personal exemptions . In addition because the charitable IRA rollover is never recognized as income to the taxpayer , they may avoid tax deduction reductions based on income levels ( for example the 2% floor on miscellaneous itemized deductions , the 7.5 % floor on medical expenses  etc. ) . In addition some taxpayers receive a lower tax benefit than expected because they are subject to the alternative minimum tax .

Donors in certain states:  Certain state income tax computations do not permit itemized deductions and therefore provide no tax breaks for charitable gifts.  The IRA direct charitable gift allows these donors to have a state tax benefit from the charitable contribution.

Also very important is the fact that deduction limitations  that could arise by the 50 % or 30 % adjusted gross income ceilings are avoided .


  ( A) Mr. and Mrs. Jones are both approximately 75 and extremely successful with a  high level of income from their business interests and portfolio . They have been very generous donors to your organization for many years and want to participate in a big way in your current capital campaign with a major gift of $100,000 . If the gift is made from current assets on hand generating a $100,000 charitable tax deduction the tax benefits of that deduction might  be limited by either the phase –out of itemized deductions or by the fact that the Jones pay alternative minimum tax ( AMT) . The benefits of the deduction might be reduced by as much as $7000 if AMT comes into play . If instead the $100,000 is transferred from one of the Jones IRA’s directly to your organization these reductions are avoided .

 ( B ) Carol Smith is quite elderly and desires to make a memorial gift in the name of her deceased husband to your organization while she is still living . If Carol were to take $100,000 out of her IRA and then make a cash gift she would likely end up paying a net tax on the transaction as the 50 % of AGI charitable deduction limitation could come into play for someone with Carol’s limited current adjusted gross income . That tax could be avoided by instead taking advantage of these tax-free charitable rollover provisions.

 If your organization has donors over 70 ½ who may have IRA’s as part of their retirement holdings, we encourage you to communicate with them about this provision to see whether this would fit with their gift planning strategies. As always given the complexity of the tax laws the donors should consult their own tax advisors to make sure this is advisable in their specific tax situation .

About Joel Berry

Joel Berry has written 8 post in this blog.

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