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By David Vollrath, Executive Director Union County Foundation Last summer the federal government passed the Pension Protection Act, which included a provision for Tax-free charitable IRA transfers. That provision provided that in 2006 and 2007, holders of traditional and Roth IRAs who are at least 70 ½ years old can make direct charitable transfers up to $100,000 per year to qualifying charities. Recently the U.S. Treasury released updated guidelines on some of the rollover provisions. In light of the fact that many of you have taken advantage of this wonderful provision to support charity I thought it might be helpful to pass on the following updated guidelines: IRA Rollovers to Pay Pledges - Initially there was understanding that IRA rollovers would be restricted from paying pledges. However since the IRA funds are owned by the IRA owner they may be used to fulfill a legal binding pledge. The transfer from the IRA owner to the charity is treated as a receipt by the owner (Sec. 4975(d)(9) and therefore the IRA rollover is not a prohibited transaction. IRA Owner Delivers Check – Most IRA custodians transfer IRA rollover funds by check or electronic transfer to the charity. Some IRA custodians issue a check payable to the charity but send it to the donor for forwarding to the charity. This transaction will still qualify as an IRA rollover if the check is issued payable to the charity and the owner delivers the check prior to December 31 of the applicable year. IRA Custodian May Rely on IRA Owner Representation – It is not incumbent on the IRA custodian to determine that the receiving charity qualifies for an IRA rollover. As a result the rollover IRA distribution is not subject to withholding and the IRA owner is at risk with respect to a potential non-qualified transfer. This means that you as the donor are responsible for making sure that the charity involved is a qualifying 501(c)(3). Supporting Organizations, donor advised funds of public charities, and donor-benefit gifts do not qualify. IRA Rollover Not Qualified – If the transfer is not "qualified" due to the donor’s age or because the receiving organization does not meet the IRS requirements then the distribution is taxable to the donor. In this case the donor would still qualify for a charitable deduction subject to regular IRS guidelines. If the gift is not fully deductible in the current year due to charitable deduction limits (based on adjusted gross income) then the excess deduction may be carried forward for up to five years. Charitable Deduction and Reporting – The IRA charitable transfer is not included in taxable income so therefore there is no charitable income tax deduction. The donor must still comply with IRS substantiation requirements. The recipient charity should issue an IRS compliant acknowledgement to the donor. SEP-IRA Rollover- IRA Charitable transfers are permitted from SEP or SIMPLE IRA’s only if the employer is no longer making contributions to the plan. Husband & Wife IRA Rollovers – A husband and wife may each directly transfer up to $100,000 from their personal IRA to a qualified charity. This means that couples with substantial IRA accounts could transfer up to $200,000 to their favorite qualifying charity(s). The Union County Foundation encourages you to work closely with your professional advisor(s) 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 including establishment of scholarship funds and donor advised funds. Please call us at 937-642-9618, email info@unioncountyfoundation.org, reference our website at 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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