New! Charitable IRA Rollover!
you are age 70 ½ or older, new legislation now allows you to make cash
gifts totaling up to $100,000 a year from your traditional or Roth IRA
to qualified charities without incurring income tax on the withdrawal.
This is good news for people who want to make a charitable gift during
their lifetime from their retirement assets, but have been discouraged
from doing so because of the income tax penalty. The provision is
effective for tax years 2006 and 2007 only, so you must act by December
31 to take full advantage.
“Our support of the American Red Cross of Central New Jersey will
extend well into the future. We made our decision knowing the necessity
of the lifesaving services Red Cross provides throughout the community.
It is charitable work we value and therefore want to make certain that
those services are available to those who need them for many years to
Richard and Carol Hanson
For more information, contact:
Julie McIssac at 609-951-2122 or via email at
Sarah Mertz at 609-951-2110 or via email at
Charitable IRA Rollover Provision
August 17, President Bush signed H.R. 4, the Pension Protection Act of
2006, into law. This bill contains 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 cash gifts made
directly to a qualified charity.
The new provision permits distributions from traditional IRAs or Roth
IRAs to qualified public charities and private operating foundations as
described in IRC 170 (b)(1)(A). Whereas such distributions were
previously income taxable, they are now excludable from gross income,
eliminating the income tax penalty for such charitable gifts. The
following limitations and restrictions apply:
- The individual for whose benefit the plan is maintained must have
attained the age of 70 ½ or older at the time of gift.
- Qualified charitable distributions may not exceed $100,000 in the
aggregate in any taxable year.
- The provision applies to tax years 2006 and 2007 only. Qualified
distributions must be made by December 31 of each year.
- Qualified distributions must be made directly to the charity by the
plan trustee. Contact your plan trustee for information on how to
initiate a transfer.
- 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withdrawn from an IRA for state income tax purposes.
- Only outright gifts are eligible. Distributions to charitable gift
annuities, charitable remainder trusts, pooled income funds and other
split-interest arrangements do not qualify for special tax treatment.
- Qualified contributions may be counted toward the Minimum Required
Distribution (MRD) for a donor’s IRA accounts.
- 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% of AGI in excess of $150,500 for tax year 2006.
- Gifts from retirement accounts other than IRAs—such as 401k, 403b,
and SEP accounts—are not eligible. Donors may be able to make qualified
transfers of money from other accounts to their IRA, and then make a
charitable gift from their IRA. Check with your tax adviser.
- Distributions to Supporting Organizations as described in IRC
503(a)(3) and Donor Advised Funds as described in IRC 4966(d)(2) are
- Donors who do not itemize their Federal income tax returns may make
qualified IRA gifts and exclude such gifts from their reportable income.
Who is most likely to benefit?
- Individuals who take mandatory minimum withdrawals, but don’t
need additional income.
- Individuals who wish to give more than the deductibility ceiling
(50% of AGI).
- Individuals who are subject to the 2% rule that reduces their
- Individuals whose major assets reside in their IRAs and who wish
to make a charitable gift during their lifetime.
- Individuals who intend to leave the balance of their IRA to
charity at death anyway.
PLEASE NOTE: This summary was prepared as an
educational service to its clients and others and is not intended as
legal or tax advice. Consult your own legal or tax advisor before
making any decision based on this information.