Charitable IRA Information

IRA Charitable Rollovers

Text Adapted from the Council on Foundations

The Pension Protection Act of 2006 (PPA) permitted individuals to roll over up to $100,000 from an individual retirement account (IRA) directly to a qualifying charity (such as the WCCF) without recognizing the assets transferred as income. While this initial provision expired on December 31, 2007, it has been extended several times. As of December 18, 2015, the IRA Charitable Rollover was passed by Congress and signed into permanent law by the President.

What is an IRA charitable rollover?

The law uses the term “qualified charitable distribution” to describe an IRA charitable rollover. A qualified charitable distribution is money that individuals who are 70½ or older may direct from their traditional IRA to eligible charitable organizations. The provision has a cap of $100,000 for charitable distributions from individual IRAs each year. Individuals may exclude the amount distributed directly to the WCCF from their gross income.

Does a donor also receive a charitable deduction when they roll over assets to the WCCF under this provision?

No. Because donors exclude this contribution from their gross income, they cannot also take a charitable contribution deduction for the contribution; to do so would result in a double benefit for donors and that is explicitly prohibited.

Will an IRA distribution to a fund held by the WCCF qualify for this special treatment?

Yes, distributions to almost all types of funds of the WCCF (discretionary, field‐of‐interest, or designated funds) qualify. The exception to this general statement is that a distribution to a donor advised fund will not qualify for this special treatment. Donors may still contribute IRA assets to a donor advised fund of the WCCF, but they will have to first recognize those distributions as income.

What if donors want to contribute more than $100,000 to the WCCF from an IRA?

The law limits the amount that donors are able to exclude from their income to $100,000. If donors wish to take funds from their IRA to contribute more than $100,000 to the WCCF they cannot exclude the additional amount from their gross income.

Under what circumstances will this special treatment of an IRA charitable rollover most likely benefit WCCF donors?

Generally, this new provision benefits WCCF donors who itemize deductions and whose charitable contributions are reduced by the percentage of income limitation. Traditionally, when individuals receive a distribution from their IRA and make a corresponding charitable contribution, they must count the distribution as income and then receive a charitable deduction for any amounts they transferred to charity. For higher income taxpayers, the charitable contribution deduction they receive may not totally offset the taxes they must pay for receiving the distribution from their IRA. In such cases, donors would potentially benefit more by using the charitable rollover provision when making a charitable donation to the WCCF. The new provision may also benefit WCCF donors who do not usually itemize their deductions.

How do individuals make a qualified charitable distribution to the WCCF?

Individuals should instruct their IRA trustee to make the contribution directly to the WCCF. We will issue a written acknowledgement of your contribution to you, verifying that no goods or services were provided in exchange for your gift.

Can WCCF donors make a qualified charitable distribution for split interest gifts, such as Charitable Lead Trusts or Charitable Remainder Trusts, or for a Charitable Gift Annuity?

No. Charitable lead trusts and charitable remainder trusts are examples of giving vehicles that are not eligible to receive qualified charitable distributions. Further, because individuals cannot receive a benefit in return for an IRA distribution, any contribution donors make in return for a charitable gift annuity would not be eligible for the tax‐free treatment.

How will charitable distributions impact the minimum required distributions from a taxpayer’s IRA?

Shortly after individuals reach the age of 70½, they are generally required to receive distributions from their traditional IRA. For the purposes of minimum required distributions, the IRS treats distributions from an IRA the same, whether individuals use the distribution for personal purposes or direct them to the WCCF.

This information is not a substitute for expert legal, tax, or other professional advice, and we strongly encourage donors to work with counsel to determine the impact of this legislation on their particular situations.  This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

IRA Assets: Tax-Wise Bequest Gifting Options

Proper Planning to Maximize Bequests to Heirs and the Community Foundation

Many individuals are surprised to learn that heirs (other than a spouse) could pay as much as 77 cents on every dollar in accumulated income tax and estate taxes for bequests from a traditional IRA — more tax than most other assets you might bequeath.

When you bequeath traditional IRA assets to the Washington County Community Foundation, the Foundation will receive 100% of the amount you bequeath. That’s more money that will be used to support our local community, to support the causes and charities that are important to you.  For this reason, many professional advisors urge their clients to turn to their IRAs first for charitable bequests. Assets that will be taxed less at death can then be targeted for heirs.

IRAs Provide Flexibility

You can change the account beneficiaries and how much each beneficiary receives as often as you like during your lifetime. You need only update the beneficiary designation form. This gives you the freedom to alter your designations if your fortune, or the tax laws, change.

Separating Charitable Assets from Assets Intended for Heirs

If you anticipate having excess money in your IRA after your charitable gifting is complete, one large IRA could be divided into two (or more) accounts to separate your charitable gift from your family’s inheritance. This strategy enables your heirs to stretch distributions out according to a formula based on their life expectancies. Having multiple accounts doesn’t affect the annual distributions you and your spouse have to take while you’re alive. For instance, if you wish to bequeath $100,000 to the WCCF, you could roll this amount into an IRA that designated the WCCF as the sole beneficiary. You then could take your annual distribution from the gains that accumulate on this account, so it stays at $100,000. Or if those assets decline in value one year, you could take more of your distribution from another IRA that performed better.

Communicate Your Intentions

At the Washington County Community Foundation, we like to get to know our donors. We have found that this is the best way to understand our donor’s charitable goals, particularly if the bequest is to be used for specific charitable purposes. When designating the WCCF as a beneficiary on IRA accounts we ask that you, or your financial planner, communicate with us so that we are clear on your charitable wishes.

This information should not be deemed legal advice.Readers are encouraged to seek consultation with appropriate professional advisors.