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Charitable Rollover

Congress Revives the IRA Charitable Rollover
In 2006 and 2007, we learned about the IRA Charitable Rollover — the option to order a distribution from an IRA directly to our organization. The distribution was excluded from the IRA owner’s income for federal tax purposes, though it did count towards the owner’s required minimum distribution for that year.

Donors really appreciated the simplicity of the IRA Charitable Rollover, however, Congress had put a time limit on this Rollover and this opportunity closed at the end of 2007… But the IRA Charitable Rollover has returned! Congress revived it with a new law, and this giving opportunity is now available through the end of 2009. Here are some details about the IRA Charitable Rollover for your consideration.

The Basic Idea

To understand the possible advantages the IRA Charitable Rollover affords, here are the basics:

• An Individual Retirement Account (IRA) is a tax-deferred retirement account.
• One contributes to the account and, for a traditional IRA, takes an above-the-line income tax deduction.
• As IRA assets increase in value, the earnings are not taxed.
• However, once an amount is withdrawn from these accounts, the distribution is typically taxed as ordinary income (a marginal tax rate as high as 35% in 2008). Before the arrival of the IRA Charitable Rollover, the only way to make a lifetime charitable gift using IRA assets was to first withdraw an amount from the IRA, and then send the same amount to a qualified charity. As noted, the withdrawal would be taxed as ordinary income. The amount transferred to charity could be deducted by the donor (subject to deduction limits). Hopefully, the charitable deduction would successfully offset the income tax due on the withdrawal from the IRA account.

Now, under the new law, the IRA Charitable Rollover features one simple step: The IRA owner instructs the IRA custodian to transfer a specific dollar amount directly to a charity. It is that simple. The IRA owner does not include the IRA distribution as income. The charity immediately benefits from the gift — a simple transfer with an instant impact!

The Basic Criteria
Here are the highlights of the IRA Charitable Rollover:

• The IRA Charitable Rollover provision is in effect for 2008 and 2009.
• Donors must be 70 1/2 or older on the date of the distribution in order to participate.
• Donors direct the distribution to a qualified charity as defined in IRC §170(b)(1)(A) (with some exceptions).
• Donors may count the amount of the distribution made through an IRA Charitable Rollover towards the Required Minimum Distribution for tax-deferred retirement accounts in that year.
• The donor may exclude up to $100,000 per year with the IRA qualified charitable distribution.

To learn more about how the IRA Charitable Rollover fits into your plans, talk to your financial and tax advisors, or contact our office. We are glad to provide more information or answer any questions regarding this exciting development in charitable giving.