What’s new on the charitable IRA rollover?

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By Timothy J. Prosser

This past year has been exciting for donors, charities and IRA administrators who have been working together to help complete “charitable IRA rollover” gifts under the Pension Protection Act of 2006.

These gifts got off to a fast start in 2006, and their future may be even brighter.

How does charitable IRA rollover work?

Under the Act, a donor over age 70˝ may give up to $100,000 per year from his or her IRA assets to charity, tax-free, during 2006 and 2007.

Only Qualified Charitable Distributions, “QCDs,” are excluded from the donor’s taxable income.

A QCD is a distribution from a traditional IRA or Roth IRA paid by the IRA administrator directly to a public charity.

Distributions to donor-advised funds or private foundations do not qualify.

QCDs must be outright gifts to charity; they may not be used to fund remainder trusts, gift annuities or other “split-interest” gifts, nor may the donor receive anything of value in exchange for the distribution.

Following passage of the Act, the IRS issued guidance that a donor may satisfy a pre-existing charitable pledge with a QCD.

The IRS also confirmed that the beneficiary of an inherited IRA may make a QCD.

Which donors benefit most?

IRA owners over age 70˝ who do not itemize probably benefit the most, since these donors would otherwise report IRA distributions as ordinary income but receive no offsetting income tax deduction for their gift to charity.

Generous donors whose gifts would otherwise exceed the 50 percent of AGI limitation on charitable deductions also benefit from the Act, as do wealthy donors for whom a QCD is a tax-effective way to remove retirement assets from their estates.

Results to date

On March 5, 2007, the National Committee on Planned Giving, or NCPG, reported that its online survey of IRA gifts indicates over 2,900 QCDs had been made to date, for a total of nearly $57 million given to charity.

The future of charitable IRA rollover

The future of charitable IRA rollover appears bright.

Inspired in part by NCPG’s survey data and the encouragement of major charities, Senators Byron Dorgan and Olympia Snowe have introduced the Public Good IRA Rollover Act of 2007 (S. 819).

This new legislation would expand charitable IRA rollover by:

  • Making it permanent.
  • Removing the $100,000 annual ceiling on distributions.
  • Allowing QCDs to fund split-interest gifts, including charitable remainder trusts, gift annuities and pooled income funds.

Charities and donors with large IRA accumulations should keep an eye on this important legislation and its companion bill in the House of Representatives, H.R. 1419.

Timothy J. Prosser, J.D., is director of institutional trust consulting for TIAA-CREF Trust Company, FSB, a full-service trust operation with trust, planned giving and investment professionals on staff that serve not-for-profit institutions in the management and administration of their planned giving programs and endowments.

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