New Nonprofit Law – IRA Charitable Rollover

Taxpayers 70½ years of age and older can make tax-free "qualified charitable distributions" of up to $100,000 annually from their IRAs (including Roth IRAs) in 2006 and 2007.  A qualified charitable distribution is any distribution from an IRA directly by the IRA trustee to a public charity (or other organization described in IRC Section 170(b)(1)(A)) other than a supporting organization or a donor advised fund.  A distribution to a charitable remainder trust or gift annuity would not be a qualified charitable distribution.

The IRA charitable rollover exclusion applies only if a charitable contribution deduction for the entire distribution otherwise would be allowable (under present law), determined without regard to the generally applicable percentage limitations.  Because no income is reported on the taxpayer’s return for the amount of the qualified charitable distribution, there is no charitable income tax deduction for such distribution.  Accordingly, none of the amount of the qualified charitable distribution from the IRA counts against the taxpayer’s charitable deduction AGI percentage limitations (another great benefit!).

The IRA charitable rollover provision is effective only through the end of 2007.  Critics state that the short time-frame makes it unfair to judge the impact of the law on charitable giving because IRA gifts tend to take time.

The September 14, 2006 issue of The Chronicle of Philanthropy contains an article discussing the following tips from fundraising experts on seeking IRA gifts under the new law, part of the Pension Protection Act of 2006 signed into law last month:

  1. Avoid mass promotions.  Remember:  the law is restricted to people age 70 ½ years of age and older.
  2. Communicate with potential donors regularly.  Remember:  this is a major decision, and older people are often reluctant to make quick decisions about changes in their financial strategies.
  3. Don’t seek gifts only from the wealthiest Americans.  Remember, other regular donors may prefer to make a substantial IRA contribution in 2006 and 2007 which may be used to set up an endowment in lieu of making annual contributions.
  4. Don’t rely on e-mail or web-site promotions.  Remember:  many older people are not comfortable getting information from web sites and e-mail.
  5. Don’t ignore your younger donors.  Remember:  many people (particularly those close to the applicable age bracket) have friends and family members who are age 70 ½ years of age or older and who may be interested in taking advantage of the new law.