SPEA: New IRA Rollover

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New IRA Rollover

Background

On August 17, 2006, H.R.4, the Pension Protection Act of 2006 was signed into law. In addition to pension reform, the Act also contains several charitable incentives and reforms, including a so-called “IRA charitable rollover” incentive that allows individuals age 70 1/2 or older to exclude from their gross income gifts transferred directly from their IRAs to certain charities (including SPEA) between now and December 31, 2007. Most charities are hopeful that, if the law proves successful, future revisions may allow gifts from younger IRA owners and transfers to "split interest gifts" such as charitable gift annuities and charitable remainder trusts.

Qualifications

Rollover qualifications include:

The donor must be at least 70 1/2 years old at the time a transfer (rollover) is made from the IRA to the charity
The transfer must be made from the IRA directly to a qualified charity
A qualified charity is an organization described in section 170(b)(1)(A), other than an organization described in section 509(a)(3)
Transfers may be made in taxable years beginning December 31, 2005, and taxable years beginning before January 1, 2008
The combined value of all transfers made (whether to one or more charities) cannot exceed $100,000 per taxpayer per taxable year
Transfers are not included in your adjusted gross income for federal income tax purposes
Transfers to charity may count as part of your annual mandatory IRA withdrawal amount
IRA transfers to charity are not taken into account in determining the deduction eligibility of other charitable contributions

Cautions

There are several restrictions and issues to keep in mind:

The transfer must be made from your IRA directly to charity, otherwise you must declare the distribution as income
The plan must be a traditional IRA or a Roth IRA; it cannot be an employer sponsored plan such as a SIMPLE IRA, a 401(k) or 403(b) plan or a simplified employment pension (“SEP”) plan
Distributions from Roth IRAs are not taxed to the account owner, so it is still wise to determine if some asset other than the Roth IRA is best to give to charity
Transfers are not deductible as charitable gifts
You may receive no benefit from the charity for your transfer (e.g. tickets, dinners, etc.)
Transfers cannot be made to charitable gift annuities, charitable remainder trusts or pooled life income funds
Transfers cannot be made to donor advised funds, private foundations, or "supporting organizations"
The donor is responsible for and must obtain documentation for the transfer as he/she would substantiate any other gift to charity
Transfers are made from otherwise taxable income first. Non-taxable income in your IRA may not be considered a qualified transfer and should be handled differently
It is still unclear how (and if) various IRA administrators will implement the opportunity, e.g. charging fees for transfers, setting minimum transfer amounts or maximum number of transfers per year, defining the process necessary to make transfers and establishing the eligibility of charities to receive transfers

Who might use this opportunity?

The “charitable rollover” provides a new method for using certain IRAs in philanthropic and financial planning:

If you already give up to your 50% charitable deduction limit of your adjusted gross income, this legislation may allow you to, in effect, exceed that limit in 2006 and 2007
If you have a "carryover" of charitable deductions from past tax years, this legislation would allow you to make gifts without impacting those carryover amounts
If your level of income causes a phase-out of certain deductions, a rollover may allow you to make gifts without increasing (maybe even decrease) your adjusted gross income
If you do not itemize your deductions, you may be able to make gifts from your IRA without increasing (maybe even decrease) your adjusted gross income
It may simply be easier to make a transfer from your IRA to charity and not need to worry about the income tax implications
If the majority of your assets are in IRAs, it may be more convenient to make a direct transfer rather than reporting a withdrawal on your income tax return
If you’ve been thinking about making a larger gift, this may provide a tax-advantaged time-frame for doing it
In some states (check with your advisor) a charitable deduction is not allowed for state tax purposes. A rollover that, in effect, reduces your reportable income may result in savings on state taxes as well

For further information on the IRA Rollover contact Pat Lyden at 216.464.3471. Suicide Prevention Education Alliance’s Federal Identification Number is 34-1724365.

This web page does not provide legal or financial advice, nor is it intended as a comprehensive review of the topic. You should consult your attorney and tax advisor before making or planning your gift.

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