Understanding IRA Charitable Rollovers

As an educational member of our community, WNED strives to provide information that will not only benefit our mission but the missions of other non-profit groups across the region. The above information is for educational purposes only. Before making any charitable contribution, it is always important to consult with your attorney or tax advisor.

Since August of last year, thousands of philanthropically minded individuals across the country have taken advantage of the Pension Protection Act of 2006 by making charitable gifts directly to their favorite charities. Unfortunately, many don’t understand how financially beneficial this can be to both the donor and the organization.

In a nutshell

Many individuals with mature IRA accounts are often faced with a sizable tax liability each year when they receive their required minimum annual withdrawal in accordance to their individual plan’s policies.

Under the old rules, donors making gifts from their IRAs would have to take the distribution into their taxable income and then claim an offsetting income tax charitable deduction. More times than not, these two parts did not balance out.

The Pension Protection Act allows individuals over the age of 70 ½ to alleviate their tax burden this year by making a direct distribution up to $100,000 from a traditional IRA or Roth IRAs to a "qualified charitable organization.” The amount of the contribution is not included in your annual gross income for that year.

This version of the act expires on December 31st, 2007,
so all contributions must be made prior to the act expiring.

How it benefits the donor

First and foremost, because qualified charitable distributions from IRAs will eliminate the need for donors to claim an income tax charitable deduction, non-itemizers will enjoy the equivalent of a charitable deduction. In fact, some donors who were itemizing for the sole purpose of claiming deductions for their charitable gifts may longer need to do so if they fund their gifts from their IRAs.

For many, this represents a great way to maximize tax benefits while streamlining the process of making your annual charitable contributions. For others, it is a tremendous opportunity to make a special gift to make a dramatic impact with your favorite charity.

For more information on this act or to learn how you can use this opportunity to create a legacy with WNED, call me directly at (716) 845 – 7031 or email me at jbell@wned.org.