IRA Rollover Extension Included in Financial Rescue Bill

IRA Rollover Extension Included in Financial Rescue Bill

Article posted in Legislative on 7 October 2008| 11 comments
audience: The Sharpe Group, National Publication | last updated: 18 May 2011
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Summary

On October 3, 2008, Congress passed and President Bush signed into law the Emergency Economic Stabilization Act of 2008. Of all the last minute sweeteners added to the Senate version of the bill, one of the sweetest for charitable organizations and those who support them was an extension of the charitable IRA rollover provisions that expired at the end of 2007. In this article, The Sharpe Group reviews these provisions and offers resources that can help organizations and advisers assist their donors and clients to take advantage of this renewed giving opportunity.

Full Text:

There has been no shortage of discussion about the “sweeteners” that the Senate added to the House version of the Emergency Economic Stabilization Act of 2008 prior to its passage on October 3, 2008. Many of the provisions included in the final bill were designed to benefit various industries and “special interests.”

Of special interest to the nation’s nonprofit sector and those who advise them and their donors is the extension in Sec. 205 of Division C of the bill of the IRA Rollover Gift provisions to distributions completed in 2008 and 2009.

The bill makes no changes in the provisions of the IRA Rollover gift provisions originally included in the Pension Protection Act of 2006.  It simply revises the 2006 provision to make it apply to gifts made in 2008 and 2009 retroactive to January 1, 2008.

    According to surveys conducted by the National Committee on Planned Giving (NCPG), the IRA Rollover gift provision resulted in hundreds of millions of dollars in gifts to charities when it was applicable during 2006 and 2007. Over 90% of gifts were $5,000+, 75% of gifts were $25,000+ and 50% or gifts were over $50,000+, so this is particularly appropriate for older donors that have this sort of retirement account that may contain any significant assets.

The law includes incentives for those 70½ years of age and older who would like to make charitable gifts from potentially taxable Individual Retirement Account (IRA) funds.  Our nation’s tax system has long encouraged charitable giving. Gifts to qualified charities, for example, may be deducted from income that could otherwise be subject to tax under federal law and the laws of many states.

Some taxpayers, however, may encounter limits on the amount of charitable gifts they can deduct and see other benefits phased out as their AGI increases. For example, retired persons may find that increases in income can cause more of their Social Security benefits to be taxed.  In other cases, they may not be in a position to fully benefit from their charitable deductions.

This new law gives those at least 70½  the opportunity to help overcome these and other challenges to giving by making tax-free charitable gifts.

Making gifts in 2008 and 2009 from IRA funds that would be subject to tax if withdrawn voluntarily or under mandatory withdrawal requirements may be a wise choice for many. Congress is allowing these individuals with traditional or Roth IRAs to make tax-free gifts directly to qualified charities.

Donors may choose to make charitable distributions from their IRA in any amount up to $100,000, if so desired. A couple with separate IRAs could each give up to that amount. Individuals who are required to take unneeded IRA withdrawals, and others who have experienced limitations on tax benefits in the past, will find the new law of particular interest.

Unchanged is the fact that assets held in Individual Retirement Accounts are not only subject to income tax when withdrawn during one’s lifetime or by survivors, but they may also be subject to estate tax if left to loved ones other than a spouse. For that reason, IRAs may be a good choice for some when deciding how to fund charitable gifts. The provisions of the law will affect individuals in a variety of ways.

Key provisions include the following:

  • Donors must be age 70½ at the time the gift is made
  • Charitable gifts to be made directly from an IRA to the charity
  • An individual can give a maximum of $100,000 in 2008 and an additional $100,000 in 2009.  A spouse can give an equal amount from his/her IRA.
  • Individuals can make as many gifts in any amount to as many charities as desired as long as the total does not exceed $100,000 for 2008 and an additional $100,000 in 2009.
  • The gift may NOT be made in exchange for a charitable gift annuity or to a charitable remainder trust.
  • The gift may NOT be made to a private foundation, donor advised fund, or supporting organization [as described in section 509(a)(3)].
  • Donors who have reached age 70½ and are required to make minimum required distributions can direct the entire amount (subject to the aforementioned $100,000 limit) to charity in satisfaction of their minimum required distribution.
Example 1: Susan and Ron, ages 71 and 74, are retired with income from a number of sources, including amounts they must withdraw from their IRAs each year. Their IRA withdrawal amounts are fully reportable as part of their adjusted gross income (AGI), potentially causing a number of adverse tax consequences, even when they make charitable gifts from these funds. This year they have been advised to contact their IRA administrator and make charitable gifts directly from their IRA. While these gifts do not technically result in an additional tax deduction, they are nevertheless tax free. These charitable distributions also do not count toward limits on deductions and other provisions that might have reduced their tax savings in the past, and are not subject to withholding tax.

Example 2: Barbara, age 81, has a taxable estate and is concerned by the fact that at her death the combination of income and estate taxes could consume the majority of an IRA that was funded through assets from her husband’s retirement plan. She decides to make tax-free distributions to charity in 2008 and 2009 in order to take full advantage of income and estate tax savings opportunities provided under the new law. As a result, she makes special gifts while assuring these IRA funds will never be subject to income or estate taxation.

Example 3: James, age 72, lives comfortably on his pension, savings, and Social Security. He is required to take minimum withdrawals from his IRA and is taxed on those funds. This distribution also causes more of his Social Security income to be taxed. However, by directing part of his mandatory IRA withdrawal to charity, he avoids reporting that amount as income and does not pay taxes on those funds. He also bypasses additional tax on his Social Security benefits.  



For additional reading on this topic, see The Pension Protection Act of 2006: A Guide to Charitable IRA Rollovers.

Also see “Going to Bat for IRA Gifts” in the November, 2007 issue of Give & Take attached below.

In addition, The Sharpe Group has prepared a brochure to highlight this special giving opportunity that is available with your organization's or firm's imprinted name, contact information and logo should you wish to purchase to send out with any mailings.  As part of you order*, a complete marketing bundle (postcard PDF, web copy, draft cover letter, etc.) will also be provided at no additional cost.A sample brochure and pricing information are attached below.

* minimum 1,000 brochures


AttachmentSize
Give&Take_11-07.pdf421.12 KB
CIRA-brochure_Order.pdf105.76 KB
CIRA-brochure-web.pdf254.33 KB

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IRA Put-back after 60 days

Rev. Proc. 2003-16 provides government's position on waivers to the 60-day rule. See Section 3.02 for a summary of the types of situations that will allow a waiver. Not clear on your question, but not needing the RMD as it was made before the QCD law extention would not appear to be the type of 'facts and circumstances' that would be 'against equity and good conscience' to allow for a re-deposit of the RMD. There are assumed to be a large number of RMDs that were made between 1/1/08 and 12/08 when PPA '06 provision on QCD was extended. Doubt if the service wants to give all of those 'taxable distribution recipients' a reprieve by allowing a deposit back to the IRA and then new checks cut to charities no matter how charitable Congress is deemed to be.

IRA Put-back after 60 days. Any law permitting this?

Before extension law passed donation made, now not neede. Can you put back funds? 60 days expired.

IRA DIRECT DONS in CA

Just called the FTB, and they confirmed the 17501 allowed the deduction! I will be filing a 540X claiming my 06 and 07 deduction that were not allowed! WOW! Thanks for the hint. CPAs had told me the State did not conform!! KZ

CA conformity

That's great Ken.

IRA DONATIONS

Here in California, the State does not allow the IRA direct Donation, but taxes the entire amount. In our case, further pain, they did not allow all our donations as a deduction because of some limit calculation. Does anyone know if the unallowed amounts are carry- forwards? I believe they were not, but hard to find Cal law on this subject

IRA Donations

Kenneth, I looked at the FTB's conformity statement for 2006 regarding the Pension Protection Act and it appears therein that the changes to IRC

ira doNATIONS

aCCOUNTATNTS TOLD ME THE sTATE DID NOT ADOPT THE DEDUCTION. I GOT TAXED ON THE ENTIRE AMOUNT. I WILL CALL THE STATE, BUT MAYBE THEY ARE IGNORING THE SECTION YOU QUOTE. DO YOU KNOW ANYONE WHO GOT THE DEDUCTION? kz

variable annuity

1. If the $100k in the IRA is in the form of a variable annuity in which the account value is lower than the benefit base for income purposes - may the owner donate the VA to the charity? If so, at what value? 2. May the owner of the IRA purchase a VA with living and death benefits, and then donate that, so 100% will go to the charity?

Variable Annuity

Both questions seem to be asking the same question -- Whether or not you can transfer the guaranteed benefits (as opposed to the contract value) of a variable annuity contract to a non-co-annutiant or non-beneficiary. The answer to that question is no. Unlike a life insurance contract, variable annuity contracts can not be transferred to and subsequently owned by a charity. If the actual account value in the VA/IRA is less than the contract's guaranteed death benefit, the IRA owner could choose not to make a direct gift now but to make his or her favorite charity the beneficiary of the higher death benefit amount when he or she passes. Christopher B. Burke Financial Consultant, AXA Advisors Buffalo, NY

Entire RMD to Charity

Thanks George. When it comes to planned giving, you can't be too clear! We've added a parenthetical statement reminding readers the RMD allocation is limited to $100,000.

Entire RMD to Charity?

One statement needs to be qualified: If the RMD exceeds $100K. then the qualified charitable distribution is still limited to $100K and the account owner must take the remaining RMD. Only those whose RMD is $100K or less can satisfy the entire RMD through qualified charitable distributions.

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