IRA Distributions Can Be Given to Charity

IRA Distributions Can Be Given to Charity

Rollovers have many potential benefits

1 February, 2007

Charities and their supporters have it a little easier these days.

The Pension Protection Act of 2006, which was signed into law in August, offers several charitable incentives and reforms, including a tax-free rollover of funds from individual retirement accounts to charity.

“Thanks to the new legislation, many Americans can now use their IRA funds for
the greater good,” said Inez Bowie, CPA, manger, Marietta office.

In 2007, qualifying taxpayers (anyone age 70 1⁄2 or older and required to take minimum distributions from their IRAs) who choose to make their charitable donations directly from an
IRA will be able to do so without having such amounts included in their annual gross income (AGI). However, because of this exclusion from income, there is also no charitable deduction. The transferred amount will qualify as your required distribution from your IRA.

“There may be potential benefits to this rollover, depending upon your specific situation. If you don’t itemize your deductions, you may be able to make gifts from your IRA without increasing your AGI,” said Bowie. “You might even decrease it.”

Bowie also explained how someone who currently gives up to 50 percent of their AGI can potentially contribute more. “This new legislation could essentially allow taxpayers to exceed their charitable deduction limits in 2007.”

In order for a donation to qualify for this rollover, it must meet all of the following requirements:
• The donor must be 70 1⁄2 or older at the time the gift is made.
• The transfer must go directly from either a traditional IRA or a Roth IRA to a qualified charity. (Transfers to donor advised funds, private foundations and support organizations do not qualify.)
• The donation must be made before Dec. 31, 2007.
• The combined value of all transfers (to one or more charities) cannot exceed $100,000 per taxpayer per tax year. And the donor cannot receive any benefit from the gift.

“Please note distributions from Roth IRAs are generally not taxed to the account owner, so you should check to see if some asset other than the Roth is a better choice for your gift,” adds Bowie.

The bottom line is this, if you are considering an IRA charitable rollover, do your homework first. There are many qualifications and limitations to consider.