Explanation of Provision
Under the new ACT, individuals may make gifts to charity from their Traditional IRA and Roth IRA accounts without any tax liability if their gifts are “qualified charitable distributions.” No charitable deduction may be taken, but distributions will qualify for all or part of the IRA owners required minimum distributions.
Here are the requirements for “qualified charitable distributions”
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Gifts are tax-free up to $100,000 per year |
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Gifts must be made in 2006 or 2007 |
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Distributions must be made directly to public charities |
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Distributions to donor-advised funds or support organizations are not permissible |
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Distributions must be an outright gift to the charity
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Distributions may only be made from traditional IRAs or Roth IRAs |
Will my charitable distribution qualify for my required minimum distribution?
Yes, your gift will be calculated as part of your required minimum distribution. For individuals who would rather not withdraw funds from their IRAs, the ACT allows them to completely avoid the additional income from their required distributions.
Do I receive a deduction for my gift?
No, because the IRA assets haven’t been taxed, no deduction is allowed. To receive a deduction, you would be required to treat the distribution as taxable income first, before taking the deduction. In most cases, it is better not to take the distribution as income.
Who benefits most from this new law?
There are several groups of individuals who will benefit from the charitable rollover:
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1.
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People who normally don’t itemize their deductions can avoid taking the IRA distribution as income and give it directly to charity. It would reduce both their Federal and State income tax liability.
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2.
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Individuals whose IRA distributions increase their income to a level where 85% of their social security is taxed may want to make a qualified charitable distribution to reduce their income to the level where only 50% of social security payments are taxable.
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3.
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Individuals who give over 50% of their income to charity will not be constrained by the 30% and 50% limitations on charitable deductions on gifts from their IRAs. By avoiding the realization of income, they have the equivalent of an unlimited deduction.
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4.
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Individuals in high income brackets and who have large IRAs may have substantial income tax savings not otherwise available because of tax deduction phase-outs and deduction limitations. A qualified charitable distribution up to $100,000 would have the triple benefit of reducing their taxable income, reducing the value in their IRA and meeting their required minimum distribution.
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Call Stan Laverman for a FACT sheet or for more information.
641-526-3185 (Home)
641-236-5568 (Work)
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