Charitable Opportunity for Giving from IRAs
The Pension Protection Act of 2006 contains an IRA Charitable Rollover provision that allows people age 70 1/2 or older to exclude up to $100,000 from their gross income for a taxable year for cash gifts directly to a qualified charity. If you make a transfer from your IRA, please notify PFM of the amount, date, name of financial institution, and your name and address. Many financial institutions will not provide donor information.
Why consider making a gift from your IRA?
There are five general reasons you might consider a current IRA gift.
Convenience
It is an easy and convenient way to make a gift. Fortunately, the IRA charitable rollover will qualify for the donor’s required minimum distribution (RMD). There is no charitable income tax deduction, but also no inclusion. It is simply a very convenient way to help your favorite charity.
Generosity
Some very generous individuals are already giving the annual maximum level of 50 percent of adjusted gross income. If there is a desire to give more, you can give up to 50 percent of adjusted gross income from your regular assets and then make “over and above” gifts from your IRA. Some generous donors may in effect give 100 percent or more of income per year through this method.
Growth
As the rules have continually become more favorable for IRAs and the withdrawal schedule has been reduced, large IRAs will continue to grow. Your IRA may even become the vast majority of your estate. You may have a need to do some “asset balancing” or there may be a major future income tax problem. It may be preferable to make the gift directly from the IRA rather than making a charitable gift from regular income.
Tax Reduction
Many seniors do not carry a mortgage, and their medical deductions are less than 7.5 percent of adjusted gross income. They often choose to use the standard deduction. If this donor withdraws $1,000 from his or her IRA and then gives it to charity, there is $1,000 of increased income with no offsetting charitable deduction. Therefore, it would be preferable for donors taking the standard deduction to make IRA gifts directly to charity and avoid the additional
income tax otherwise payable.
Savings for Social Security Recipients
Social Security is subject to two levels of taxation. Withdrawing an amount from an IRA will potentially increase the recipient’s Social Security taxable bracket. Even though the withdrawn amount is given to charity and deducted, there may still be tax on the Social Security benefits. Thus, by making the transfer directly to charity, many Social Security recipients may save substantial taxes.
IRA Gift Requirements
There are four requirements for a qualified IRA charitable gift. First, the IRA gift must otherwise have been includible ordinary income to the IRA owner. Second, the IRA owner must be 70 or older. Third, the gift must be to a qualified exempt public charity, and may not have any limitations that would disqualify a charitable deduction. Fourth, the recipient may not be a private foundation, supporting organization, or donor advised fund.
For more information, please contact us.
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