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Gift Planning

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IRA Charitable Rollover

Categories: News

IRA Charitable Rollover Now Permanent since December 2015

The IRA Rollover was first enacted in 2006 as part of the Pension Protection Act. It was made permanent law through the Protecting Americans from Tax Hikes Act of 2015. The provision allows individuals aged 70½ and older to donate up to $100,000 from their Individual Retirement Accounts (IRAs) to public charities without having to count the distributions as taxable income. For individuals who do not need more income, this withdrawal will count as part or all of the Required Minimum Distribution (RMD).

Without this rollover option, a retiree in a 33% marginal bracket would need to withdraw about $150,000, declare it as income received from the IRA, set aside the tax (about $50,000) to have $100,000 left to give to a favored charity.

Since the provision was first enacted, Americans have made millions of dollars of new contributions to nonprofits – such as Community Health Care.

Tax-free distributions under section 408(d)(8) for charitable purposes

Public Law 114-113, Division Q (The Protecting Americans from Tax Hikes (PATH) Act of 2015), section 112 extends tax-free distributions from individual retirement plans for charitable purposes beginning after December 31, 2014.  There is no special reporting of these distributions on Form 1099-R.

Both Traditional and Roth IRAs are the only plans acceptable for this provision.  The donor and the IRA plan custodian must follow strict rules to ensure there is no taxable event:

  1. Donor must be at least 70 ½ and have an IRA (can roll a traditional retirement plan into an IRA first, then transfer)
  2. Donor contacts IRA Custodian in writing and asks for transfer DIRECTLY to the qualifying charitable organization under Sec. 170(b(1)(a), other than a private foundation or donor-advised fund.
  3. The transaction must NOT include a quid pro quo of any kind (something in return) as a result of this transfer.  Any gift or benefit will disqualify the transfer and it then becomes taxable to the donor!
  4. The transfer must be postmarked by Dec 31st of the year of the gift and the charity must receive the gift directly without it going to the donor first.

Tax Benefits to the donor

Avoids the percentage limitation on charitable contributions – which limits donation of cash to 50% and appreciated assets to 30% of AGI.  Thus a donor can effectively go past the limit without tax penalty.
At higher incomes, it won’t push the donor up into the Itemized Deduction & Personal Exemption phase-outs.
Helps those who use Standard Deduction to still get a tax break on the donation and won’t increase the amount of income subject to the tax on Social Security.

More information is available at the website below:

Community Health Care recommends consulting a tax professional or lawyer for advice if you are contemplating making a sizable charitable gift. For more information, please contact Rick Oldenburg (253) 691-3195

This article was written by Rick Oldenburg, Community Health Care Gift Planning Specialist.