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By David Vollrath, Executive Director Union County Foundation Most economists agree that it is in the best interest of the federal government to encourage charitable giving through various tax incentives. After all, a dollar of charitable support provided by the private sector is a dollar that doesn’t have to be provided by the public sector. Recently the federal government created a limited window of opportunity to encourage charitable giving. This important federal legislation allows holders of traditional and Roth IRAs who are at least 70 ½ years old to make direct charitable transfers to qualifying public charities up to $100,000 per year in 2006 and 2007. With these direct transfers the gift amount is not included in the IRA owner’s income and therefore is not subject to federal income tax. The special tax law is in effect only for 2006 and 2007. Our last article provided several real world applications. Today’s article provides several more. Scenario 1: Jack is a 76-year-old retired automotive manufacturing manager with a substantial rollover IRA. Jack’s required IRA annual distribution coupled with CD interest and some stock dividends result in 50% of his social security payments being taxed. Jack also knows that at age 78 federal rules will require him to take an even larger annual IRA distribution which could cause as much as 85% of his social security benefits to be taxable. Jack has always supported Union County charities and knows of a particular project that he would very much like to make a meaningful donation to. Jack wonders if the new law could work in his favor. Solution: After consulting with his financial advisor, Jack understands that a direct charitable gift from his rollover IRA to a qualifying public charity qualifies as part of the required minimum distribution that he must receive from his IRA each year. Under the new legislation Jack need not include this direct gift in his income, therefore Jack is able to maintain a lower taxable income. With this lower taxable income Jack avoids increased taxes on his social security benefits while supporting a charitable Union County project that is important to him. Jack contacts the financial company that holds his IRA assets and directs them to make the specified "direct qualified charitable distribution". Scenario 2: Jim is a 76-year-old retired investment counselor. Through wise investments and a bit of good luck his IRA has grown to be a significant asset. Due to the substantial size of his IRA his required annual distribution is nearly $75000 per year. Jim has for years supported his local high school alumni scholarship fund and would like to now make a major gift. Solution: After talking with his CPA Jim decides to take advantage of the new legislation and make a direct IRA gift of $75,000 to his high school alumni scholarship fund. By not having to include that $75000 into his income Jim benefits in several ways: his personal exemption is not phased out, he doesn’t lose the 2% of his itemized deductions that would occur at the higher income level, and his AMT (Alternative Minimum Tax) exemption remains in tact at the lower income level. The Union County Foundation welcomes the opportunity to explore with you the charitable possibilities created by this new legislation. The Foundation encourages you to work closely with your tax and professional advisors as you develop your estate plan and consider your present and future charitable goals. The Foundation is equipped to help you achieve your charitable goals by providing planned giving and estate planning resource information, charitable gift annuities/life income plans, and a broad array of charitable choices. Please call us at 937-642-9618, email info@unioncountyfoundation.org, reference our web site www.unioncountyfoundation.org or stop by our Marysville office at 126 N. Main St. We are committed to helping you…. "preserve your footprint in time." |
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