Charitable IRA Rollover Revived

January 7, 2013

in Charity, Fundraising, Philanthropy, Planned Giving, Taxation, Taxes

Happy New Year!

Courtesy of Philanthropy.com

Courtesy of Philanthropy.com

Passed on January 1, 2013, the American Taxpayer Relief Act of 2012 renewed charitable giving from individual retirement accounts (IRAs) for those 70-and-a-half or older.

If you were practicing Planned Giving a few years ago, this is deja vu. All the requirements are the same as in 2010, and there are two add-ons.

This is an IRA distribution, not a rollover. A rollover is a transfer from one retirement account to another retirement account.

What we have here is a distribution to charity. I use the vernacular in my title because that’s what people search for.

From here on I’m calling this a qualified charitable distribution, the exact designation in the Act.

Please recognize that my analysis is based on my reading of the American Taxpayer Relief Act of 2012, without the benefit of IRS rulings, tax court decisions or other official guidance that has yet to come. I am not providing tax, accounting or legal advice. Donors must consult their own advisors to determine whether, and how, to make a charitable gift.

Here are the requirements for a qualified charitable distribution:

  1. Your donor is at least 70 1/2 years old on the date of gift and yours is a 501(c)(3) charity (supporting organizations are not included; nor are donor advised funds)
  2. The IRA is a traditional or Roth
  3. Maximum $100,000 per donor per year in qualified charitable distributions
  4. The distribution is direct from IRA to charity
  5. The full value of the gift would be eligible for an income tax charitable deduction if it were not a qualified charitable distribution
  6. The amount distributed would be included in gross income if it were not a qualified charitable distribution

Promotion
Numbers 1-4 are straightforward and what I recommend using in promotional materials. Also drop in these two points if you have space:

First, the amount of the gift counts toward an IRA required minimum distribution, or RMD. Lots of people (though not as many as in 2007 and years before) are required to take more from IRAs than they need. This provision helps them reduce that dilemma.

Second, the amount of the distribution to charity is not included in federal gross income, so it’s exempt from federal income tax.

Important Fine Print
Numbers 5 and 6 have nuances that are more appropriate to an article than a blog. They are the primary reasons your materials include a disclaimer that you’re not providing tax or legal advice and donors must consult their own advisors. The first four are secondary reasons for your disclaimer, because there are ins-and-outs in those, too.

I will make an important point on #5. It precludes using this to buy a ticket to your dinner or an auction item; buy anything from your charity; or fund a charitable gift annuity or charitable trust. None of these are 100% deductible for federal income tax purposes. Raffle tickets are precluded because no part of the amount paid is a charitable contribution for federal income tax purposes. (They may be deductible losses if the person has gambling winnings, but we’re not going there.)

New From 2010
The two additions from the 2010 version are (subject to 1-6 above):
— Your donors can can make qualified charitable distributions before February 1 and count them toward 2012
— If donors took IRA distributions in December, they can count any portion of them as 2012 qualified charitable distributions. Their gifts need to get to you before February 1 to grab this opportunity. (You may disregard #4 for this.)

A Download For You
Here’s an easy one-pager I put together for you to share with your board; use in promo materials; excerpt for an email blast; carve up for a newsletter sidebar; and generally use for your charity as you like.

Getting Donors Started

It’s easy. They tell their IRA custodian they want to make a qualified charitable distribution to your charity. Share your tax ID number. Donors will need it to fill out a form.

Take advantage of this immediate-cash planned gift. It’s a valuable way to start the year and gives you a timely, newsy reason to talk to prospects.

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