Charitable IRA

Mediaon December 22nd, 2015Comments Off on Charitable IRA

Tax law extension. Annually, retirement assets may become a preferred charitable gift for seniors. IRA distributions to charity can now again receive special tax advantages. Americans age 70½ and up can make tax-free IRA contributions to public charities such as The Freestore Foodbank.

Donors 70½ and older can make a gift of up to $100,000 from their IRAs! These gifts can qualify for tax-free charitable distributions AND meet minimum required distributions.

The Freestore Foodbank can help turn your individual retirement accounts into tax-saving charitable gifts.

Thanks to the new legislation, American 70½ and older can give up to $100,000 of their IRAs to charity without federal tax penalty. So your retirement funds can go further than ever before. To learn more, contact Mindy Hammer at (513) 375-8644 or mhammer@freestorefoodbank.org.

For years, estate planners have recommended that retirement assets may be the most tax-effective asset in larger estates to distribute to charity. These assets are not only vulnerable to heavy taxation as part of an estate but also can be taxed again as income in respect to a decedent on the tax returns of heirs.

Until recent legislation, there was a disincentive for retirees to give IRAs to charity during their lifetimes because withdrawals from IRAs were subject to income tax—even those given to charity.

Tax law extension. Annually, retirement assets may become a preferred charitable gift for seniors. IRA distributions to charity can now again receive special tax advantages. Americans age 70½ and up can make tax-free IRA contributions to public charities such as The Freestore Foodbank.

Frequently Asked Questions

What is a charitable IRA rollover?
The charitable IRA rollover, or qualified charitable distribution, is a special provision allowing certain donors to exclude from taxable income – and count toward their required minimum distribution – certain transfers of Individual Retirement Account (IRA) assets that are made directly to public charities, including The Freestore Foodbank.

Since it was first made available in tax year 2006, many Freestore Foodbank donors age 70½ or older have used this popular option to support the areas of their choice with tax-wise gifts ranging from $100 to $100,000.

How does this help me?
A charitable IRA rollover makes it easier to use IRA assets, during lifetime, to make charitable gifts.

Why will lifetime IRA gifts be easier?
Under current law, withdrawals from traditional IRAs and certain Roth IRAs are taxed as income, even if they are immediately directed to a charity. The donor receives a tax deduction for his or her donation, but various other federal, and sometimes state, tax rules can prevent the deduction from fully offsetting this taxable income. As a result, many donors have chosen not to use IRA assets for lifetime gifts. The charitable IRA rollover eliminates this problem for a limited time.

What gifts would qualify for a 2015 charitable IRA rollover?
A gift that qualifies, technically termed a “qualified charitable distribution,” would be:

  • Made by a donor 70½ or older
  • Transferred from a traditional or Roth IRA directly to a permissible public charity, such as The Freestore Foodbank
  • Completed in calendar year 2015 for the 2015 tax year

Is there a limit on the amount that can be given?
Yes, there is a limit. An individual taxpayer’s total charitable IRA rollover gifts cannot exceed $100,000 per tax year.

What about the required minimum distribution?
If you have not already taken your required minimum distribution in a given year, a qualifying rollover gift can count toward satisfying this requirement.

Is an income tax deduction also available?
No. The gift would be excluded from income, so providing a deduction in addition to that exclusion would create an inappropriate double tax benefit.

Why are Roth IRAs included? Aren’t withdrawal from a Roth IRA tax-free?
Withdrawals from a Roth IRA may be tax-free only if the account has been open for longer than five years or if certain other conditions apply. Otherwise, withdrawals are taxed as if they came from a traditional IRA. Therefore, certain Roth IRAs could benefit from a charitable IRA rollover.

Can other retirement plans, such as 401(k) and 403(b) accounts, be used?
No. However, it may be possible to make a tax-free transfer from such other accounts to an IRA, from which a charitable rollover can then be made.

Can a gift be made to any charity?
No. Donor advised funds, supporting organizations, and private foundations are excluded.

Who can benefit from using the charitable IRA rollover to make a gift?

  • Persons with significant assets in an IRA
  • Persons making gifts that are large, relative to their income. Because a charitable rollover is not included in taxable income, it does not count against the usual percentage limitations on using charitable deductions.
  • Persons having so few deductions that they choose not to itemize.

Can a rollover gift be used to fund a charitable remainder trust or charitable gift annuity?
No. The donor can receive no benefits in return for the gift. This includes life income plan payments.

Are there any benefits that a donor can receive?
The only permissible benefits from a charitable IRA rollover gift are those that would not reduce the tax deduction for which the donor would have otherwise qualified.

Can I still make a gift with an IRA beneficiary designation?
Absolutely! Whether or not you choose to make a charitable IRA rollover gift, you can still designate The Freestore Foodbank as a beneficiary to receive IRA assets after your lifetime. The lifetime charitable IRA rollover is simply another option for donors who would like to see their philanthropy at work now.

If I made a charitable IRA rollover gift in other tax years, can I do this again for the 2015 tax year?
Yes. Even if you and your spouse made the maximum $100,000 charitable IRA rollover gift to a qualifying charity during one or more previous years, you can still take advantage of this legislation again for the 2015 tax year.

What about 2016 and beyond?
The current law extends the charitable IRA rollover provision indefinitely – with no expiration date – allowing individuals to make qualifying gifts every tax year.

More questions?
Contact Mindy Hammer at (513) 375-8644 or mhammer@freestorefoodbank.org.\

The information provided here is based on analysis of recent legislation as of December 22, 2015. Every effort has been made to ensure accuracy of the answers to these questions. However, due to the complexity of the tax law and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information may be subject to change. It is not a substitute for expert legal, tax or other professional counsel and we strongly encourage donors to work with their professional advisors to determine the impact of this legislation on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.