IRA Provision Extended

December 22, 2010  //  United Way

In these challenging economic times, many donors are exploring alternative ways to continue their ongoing support of United Way of Lincoln & Lancaster County. If you are over 70 ½ the charitable IRA rollover might be something you should consider.

Recently the Congress passed and President Obama signed into law a bill that contained a provision extended the ability of donors to make charitable gifts out of their IRA or Roth IRA up to $100,000 in 2010 and also 2011. While there is no charitable deduction for an IRA charitable rollover, the gift counts toward required minimum withdrawal requirements and is not counted in taxable income.

How is this legislation helpful?

Consider Mary Smith, age 73. Mary takes required distributions from her IRA each year, which are taxable, to help cover living expenses and to provide a source of money to make charitable donations. Since Mary does not itemize, there is no charitable deduction for her gift to help offset the taxable distribution from her IRA. She is essentially “paying taxes” on funds used to make her charitable gifts. However, with the rollover provision Mary can make her contributions directly from her IRA and not be taxed.

Higher-income donors may also experience tax savings.

Bill Green doesn’t like pulling money from his IRA because it is not needed to maintain his lifestyle. The withdrawals increased his adjusted gross income resulting in higher income taxes and triggering other negative tax consequences. But Bill does not want to accumulate funds in his IRA because they will be subject to the “double taxation” of estate and income tax when inherited by his heirs. Through a tax-free rollover, Bill is able to move at least $100,000 out of his IRA to fund his charitable donations without increasing his taxable income. This money also escapes the potential of “double taxation” that might occur through an inheritance.

Major Gifts to Initiatives or to Create Tocqueville Legacy Circle Endowments

Alice and Don Fullmer have been long-time Tocqueville members and wish to establish an endowment that will perpetuate their annual gift past their lifetime. At their level of giving, an endowment of $400,000 would be required. Since both Alice and Don have sizable IRAs, they can each afford to give $100,000 in 2010 and 2011, enough to create their endowed Tocqueville gift.

Because the charitable IRA rollover extension was passed so late in 2010, Congress has made a special provision that through January 2011, charitable IRA rollover gifts may apply to 2010. Donors may also make an additional gift in 2011.

The above examples are for illustration purposes only. Donors should contact their own advisors to see how the Charitable IRA Rollover provisions might affect their own situation.