Tax-Free IRA Rollovers for Charity

Charitable IRA Donations
New provisions in the Pension Protection Act of 2006 enacted on August 17, 2006 allow taxpayers to donate money to charity directly from their IRA account. The distributions will be tax-free and avoid the penalty on early withdrawals. Taxpayers are allowed to donate up to $100,000 per year from their IRA. Since the distribution will not be included in taxable income, individuals will not be able to claim a tax deduction for the charitable contribution.

What gifts qualify?
For 2007 and 2008, an individual aged 70½ or older can make direct charitable gifts from an IRA (including required minimum distributions) of up to $100,000 per year to public charities (other than donor advised funds and supporting organizations) and not have to report the IRA distributions as taxable income on his or her federal income tax return. This is for outright gifts only, not life-income gifts. There is no charitable deduction for the distributions. However, not paying tax on otherwise taxable income is the equivalent of a charitable deduction.

What kind of IRA’s qualify?
Distributions from traditional and Roth IRAs are the only ones that are tax free. Distributions from employer sponsored retirement plans, including SIMPLE IRAs and simplified employee pensions (SEPs) aren't qualified charitable distributions; nor are distributions from Keoghs, 403(b) plans, 401(k) plans, profit sharing and other plans. However, if you roll over funds from a non-qualified pension plan into a qualified IRA (which transfer is tax-free), you can then make a contribution from the qualified IRA directly to the charity.

What charities qualify?
Public charities described in IRC §170(b)(1)(A) other than supporting organizations (described in IRC §509(a)(3), and donor advised funds (described in IRC §4966(d)(2)). The Food Bank is a qualified charity.

For more information on how to make a contribution to the
Food Bank, please contact us at 540-342-3011, ext. 23.

Disclaimer: This website contains general advice or information only. This information does not constitute financial, investment or tax advice, and does not attempt to give you advice that relates to your specific circumstances. If you would like to take advantage of this tax incentive opportunity, you should consult a qualified financial advisor.

Sources:
Parts of this text have been excerpted from the following:
Steve Leimberg’s Charitable Planning Newsletter #106
(September 28, 2006).

The Pension Protection Act of 2006: A Guide to Charitable IRA Rollovers, by Marc D. Hoffman. http://www.pgdc.com/usa/print_item/?itemID=368499

Sample Letters
Click here to view Sample Letters to an IRA plan administrator with instructions to make a charitable distribution, and a notice letter to the Food Bank.