Charitable IRA

If you are over 70 ½ years of age and have an IRA, you know you must take a Required Minimum Distribution from your IRA each year, and you know that those Distributions are taxed as ordinary income.

However, you now have the ability to make a direct distribution from your IRA to your favorite charity or charities and the distribution will NOT be taxable income.  You must act before December 31^st to fully benefit from this new legislation.

On August 17, 2006, President Bush signed H.R. 4, known as the Pension Protection Act of 2006, into law.  It includes a two-year IRA Charitable Rollover provision that allows people age 70 ½  or older to exclude up to $100,000 from their gross income in tax years 2006 and 2007 for distributions made directly from their IRA to a qualified charity.

It is important to keep these points in mind:

1. The provision applies only to tax years 2006 and 2007, and then it expires (unless renewed by Congress).  To benefit, you must act by December 31^st of each year.
2.  Distributions must be made directly from your IRA Trustee or Custodian to a qualified charity.  Contact the bank, Brokerage Firm, Mutual Fund or Insurance Company where your IRA is located.  (If you take your normal Required Minimum Distribution, it will be taxable, even if you then make a donation to charity.  Your IRA Custodian will have a special Charitable IRA Distribution Form that you must complete.)
3. Qualified charitable distributions may be excluded from gross income for Federal Income Tax purposes.  However, no federal income tax deduction is available.  Certain states may not exclude gift amounts withdrawn from an IRA for state income tax purposes.
4. Only outright gifts are eligible.  Distributions to charitable gift annuities, charitable remainder trusts, donor advised funds or pooled income funds do NOT qualify for special tax treatment.
5. Qualified contributions may be counted toward meeting your Required Minimum Distribution.
6. Qualified contributions are not subject to the deductibility ceiling (50% of AGI) or the 2% rule that requires that itemized deductions be reduced by 2% AGI in excess of $1,500,500 for tax year 2006.
7. Gifts from retirement accounts other than IRA’s – such as 401(k), 403(b), and SEP accounts – are not eligible.  Donors may be able to make qualified transfers from other accounts to an IRA Rollover and then make a charitable gift from their IRA.  Please check with your tax adviser.
8. Distributions to Supporting organizations as described in IRC 503(a)(3) and Donor Advised Funds as described in IRC 4966(d)(2) are specifically excluded.
9. Donors who do NOT itemize their Federal income tax returns may make qualified IRA gifts and exclude those gifts (up to $100,000) from their reportable income.

Who might benefit from this special legislation?

• Individuals who donate money to charity every year, have an IRA, and are over 70 ½ years old.
• Individuals who have named your favorite charity or charities as a beneficiary of your will or trust, and would like to transfer funds to that charity or charities while you are still alive, and receive income tax and possible estate tax savings.
• Individuals who take mandatory Required Minimum Distributions, do not need the additional income, and have charitable and philanthropic interests.
• Individuals who take the Standard Deduction and do not benefit from Itemized Deductions, and would like to transfer money to charity without increasing your taxable income.
• Individuals who intend to leave a significant portion of their IRA to charity when they pass away.
• Individuals who are affected by the phase out of the 2% rule that reduces their itemized deductions.
• Individuals who wish to give more that the deductibility ceiling (50% of the AGI).
• Individuals whose major assets reside in their IRA’s and who wish to make a charitable gift during their lifetime.

For more information, please consult your tax advisor.