IRA Charitable Roll Over

Legislation that provides tax incentives for those 70 ½ and above is set to expire on December 31. In 2008, as part of the Emergency Economic Stabilization Act, the U.S. House of Representatives passed a two-year extension of Charitable IRA legislation. This legislation allows taxpayers 70 ½ and older to share their assets by giving retirement savings or “IRA dollars” directly to charity—and bypassing income tax.

 “It is a win-win—for people who would rather give to charity than pay taxes and the nonprofit organizations they choose to support,” said Holly C. Sampson, Duluth Superior Area Community Foundation President.
By going directly to a qualified public charity such as the Community Foundation, the money is not included in the IRA owner’s income and—most important—is not taxed, preserving the full amount for charitable purposes. The gift may not be taken as a tax deduction as well.

Through December 31, holders of traditional IRAs who are at least 70½ years old can make direct charitable transfers up to $100,000 per year. A single person can transfer $100,000 free from federal tax; a married couple can transfer up to $200,000 free from federal tax from separate accounts. The Duluth Superior Area Community Foundation can help donors execute the transfers and choose from several charitable fund options or additions for their gift. Donor Advised Funds do not qualify for tax-free IRA transfers.

Thanks to decades of deliberate saving, some of today’s retirees have more money in their IRAs than they need for daily living expenses and long-term care. Charitable individuals and couples have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which reduces the value of the gift. Others are concerned about designating their children as IRA beneficiaries, since that may draw unintended tax consequences.

“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” Sampson said. “Experts estimate heirs may receive less than 50% of IRA assets that pass through estates and this is one way to avoid that.”

For more information on the IRA Charitable Roll Over, contact the Community Foundation or download our Roll Over Fact Sheet. Also, please feel free to download our free IRA Work Sheet which will help your client determine if this is a good fit for them.