The Charitable IRA Rollover Gift

Financial Rescue Package Extends Charitable IRA Rollover Gift

The Emergency Economic Stabilization Act of 2008 extends the exciting tax-smart Charitable IRA Rollover Gift idea into the year 2009.  Donors, age 70 and 1/2 and above can now donate up to $100,000 a year directly from their Individual Retirement Account to The Salvation Army.

The Charitable IRA Rollover gift can be made in 2008 and also in 2009.  The gift provides the equivalent of a 100% income tax charitable contribution deduction for the gift.

The gift also reduces the amount that a donor must take into taxable income as an IRA miniumum distribution.  A donor who is required to take a 5% minimum distribution from his IRA can instead direct the entire minimum distribution to The Salvation Army and reduce their taxable income.

Direct Gifts from Qualifying IRAs

The Charitable IRA Rollover gift is made directly from the IRA custodian to the charitable organization.  The gift is a completely tax-free transfer from the IRA to the charity.  The gift is not included in the donor's income and the donor receives no income tax charitable contribution deduction for the gift.  The completely tax-free transfer provides the equivalent of a 100% income tax charitable deduction for the gift. 

Example:  John Jones, 71, has a traditional IRA with a  balance of $100,000, consisting of deductible contributions and earnings.  John has no other IRA.  John asks his IRA custodian to distribute the entire $100,000 to The Salvation Army.  Under prior law, the entire distribution of $100,000 would have been included in John's income.  Under the new law, the distribution of $100,000 is a qualified charitable contribution.  As a result, no amount is included in John's income and this completely tax-free gift to the Salvation Army helps the people we serve.

Use Traditional and Roth IRAs to Make Rollover Gifts

The Charitable IRA Rollover is used for gifts from traditional IRAs and Roth IRAs.  Donors who have a non-qualified plan often can roll over assets tax-free into a new IRA.  Check your plan to make sure this strategy will work for you.

Practical Situations that Invite the Tax-Smart IRA Rollover Gift

The Charitable IRA Rollover Gift is a tax-smart gift.  This method of giving is especially attractive in the following situations:

1.  Large Fund IRAs:  Many donors have large fund balances in their traditional IRAs and Roth IRAs.  The Charitable IRA Rollover gift provides a simple method of giving that provides the equivalent of a 100% income tax charitable contribution deduction and also avoids eventual confiscatory taxation.

2.  Non-Itemizers:  Many contributors do not itemize income tax deductions on their tax return.  They take the standard deduction and they receive no tax benefit when they make a charitable gift.

3.  Very Generous Donors:  Many extremely generous donors who itemize their deductions and make charitable gifts up to the applicable charitable contribution limits of 30% or 50% of their contribution base can now give more to The Salvation Army.

4.  Income Reduction:  Many higher income donors who make generous charitable gifts would like to reduce their income.  The Charitable IRA Rollover gift reduces income and the negative impact on the increase in Social Security taxes, the phase-out of itemized deductions, the application of alternative minimum tax, the deductibility of medical expenses, and the child tax credit.

5.  The Double Whammy:  Many donors live in states with the double whammy of a state income tax and no off-setting state income tax deduction for charitable gifts.  The Charitable IRA Rollover often provides the equivalent of a 100% state income tax charitable deduction in these states.

6.  States with No Income Tax:  Many donors live in states with no state income tax.  Many of these donors do not itemize their deductions on their income tax return.  They take the standard deduction and thus this gift may be especially attractive to them.

The information provided is not intended as specific legal advice.  Consult your attorney when considering any legal matter.  State laws which govern wills and contracts vary and are subject to change.  Copyright:  Winton C. Smith, Jr., 2008

For more information on charitable IRA giving, contact:  John Zanders at The Salvation Army, Georgia Divisonal Headquarters, Resource Development Department, 1000 Center Place, Norcross, GA 30093.  Phone:  (678) 418-4646.