Category Archives: IRA Rollover

Nonprofit Radio for January 8, 2016: Don’t Burn Out in 2016 & The PATH for Charities

Big Nonprofit Ideas for the Other 95%

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Paul Loeb: Don’t Burn Out in 2016

Paul Loeb

Paul Loeb has been doing social change since the Vietnam War and his most recent books are “Soul Of a Citizen” and “The Impossible Will Take a Little While.” After nearly 50 years of activisim, he has a lot to recommend about keeping yourself motivated day-after-day. We talked at Opportunity Collaboration 2015 in Ixtapa, Mexico.

Gene Takagi: The PATH for Charities

Gene Takagi
Gene Takagi

The PATH Act signed by President Obama late last month includes 3 key items for charities: IRA Rollover, conservation easements & food inventory gifts. Gene explains them all. He’s our legal contributor and principal of NEO, the Nonprofit & Exempt Organizations Law Group.

 


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My Top Stuff From 2015

My last video of 2015 highlights the year’s top videos and Nonprofit Radio episodes. They include stand-up comedy; the Charitable IRA Rollover; and peer-to-peer fundraising.

Top 4 Videos:
Top 3 Nonprofit Radio Episodes:
2014 Giving Review & 2015 Forecast (I’ll do the 2015 Giving Review & 2016 Forecast on 1/29/16)

Fact & Commentary: Charitable IRA Rollover Extended, Part II

Crossword puzzle and pencil

Yesterday I explained the nuts-and-bolts of the extended Charitable IRA rollover. That was the facts: Fact & Commentary: Charitable IRA Rollover Extended, Part I. Today I’ll spend time on how to promote this and weave it into your other fundraising channels.

Today is . . .

The Commentary

Who Are The Prospects. You need prospects over 70. If they’re on your board, send an email blast with basic information and follow-up by phone. Make it a short agenda item in your next meeting to encourage participation. Ideally, a board member who made an IRA gift to you stands up in the meeting and encourages colleagues to do the same.

For non-board members, send an email blast if you have addresses. Then follow-up with paper mail. I’d wait until just after the new year. The odds of getting one of these closed before year-end are small. You’ve got enough going on in the next two weeks–don’t kill yourself by adding this. Besides, January gifts can be dated December 31.

On the other hand, if you’re actively talking to appropriately-aged prospects about their end of year giving, bring it up with them quickly.

After the new year, look to donors with multi-year pledges. This might be a way of accelerating payment in 2011. January gifts can be dated December 31, up to $100,000. An additional 2011 gift can be made up to the same amount, so that one donor can rollover $200,000 to you in 2011 (half dated 12/31/10 and the rest dated in 2011). If your donor has a spouse, together they can rollover $400,000 next year, if they start in January.

Finally, look to other IRA gift prospects. Don’t dismiss those not at the two- to four-hundred thousand dollar level. In 2007 we had a college client achieve nearly 20 gifts in four and low five-figure amounts. Wisely, they welcomed each to their planned gift recognition society.

How To Promote. Use all your communications channels. I single out for mention, sidebars in materials that go to wide audiences. You probably don’t want to devote full blown article space to this if only a small percentage of your constituents are the right age. In your sidebar, include your legal name and federal tax ID number so prospects can convert themselves to donors without having to talk to you, but provide contact information so they can talk if they’d like to.

Can you afford printed direct mail? Do it. Those over 70 still respond to the written personal letter.

Do you talk to your elder constituents on Facebook? I covered this in my NextGen:Charity workshop, Planned Giving & Social Media. Their video isn’t up yet, but my slides are: Planned Giving & Social Media. The FB penetration rate among those 60 and over is growing steadily, but is still less than half. If you’ve engaged your elder prospects on social media properties, this is an ideal topic because it’s strictly age related. I think this is a considerable growth area for Planned Giving.

Integrate With Annual Appeal. If you send annual appeals, next year include a one-third-of-a-page buckslip with information about making the annual gift through an IRA. Include your legal name and tax ID number, and a contact name and number. Maybe a tease printed on the carrier envelope flap?

Integrate With All Giving. In whatever way you define your fundraising team members, get them all comfortable opening the door to a conversation about IRA giving. It should be standard protocol when they’re talking to prospects over 70. Many, many unassuming “middle income millionaires” are among us. They had careers as teachers, postal workers and nurses, and in their working years they put a lot of money into retirement accounts. Raise IRA giving with them over lunch in their kitchen, in seminars and on the phone.

Take the opportunity to expand the conversation. Talk about naming your nonprofit as a beneficiary of an IRA. I explained this in a 2006 newsletter when the Pension Protection Act first approved qualified charitable distributions. In this newsletter, scroll down to the “Planned Giving” heading.

Not Necessarily A Wash. Here’s something that may come up while you’re talking about this in 2011. I have been asked many times in meetings and seminars, and occasional prospects will raise as an objection to your solicitation, “Isn’t doing a charitable IRA rollover the same as making an IRA withdrawal, paying the additional income tax, making a gift, and claiming the charitable deduction? Doesn’t the deduction offset the tax, making it a (tax neutral) wash?”

Not necessarily, for four reasons.

      1. Non-itemizers. Those who don’t file Form 1040 can’t claim the charitable deduction. They accept the standard deduction.

      2. State of residence. Some states (including New York) don’t allow charitable deductions from income. The deduction’s value would be lost for state income tax purposes.

      3. Income level. The addition to income might kick the non-IRA donor into a higher marginal tax bracket, while reduced taxable income might putt the IRA donor into a lower tax rate. Wouldn’t you rather be putted than kicked? Also, there are deductions, like medical expenses, tied to taxable income. The IRA donor–with lower taxable income–will be more likely to benefit from these.

      4. 50% cash donation limitation. Charitable deductions for gifts of cash are limited to 50% of adjusted gross income. The non-IRA donor might be up against this limit, and have to carry the deduction forward into future years. The IRA donor doesn’t worry about it.

Talk about IRA giving with your constituents who are the right age. Engage your prospects where they are hanging out: board meetings; on phone calls; reading mail at home; or on Facebook.

I’m interested to hear how your IRA giving is going in 2011. Keep in touch.

Fact & Commentary: Charitable IRA Rollover Extended, Part I

Deductions, Taxes and Tax Day

The Facts:

Your 2010 end-of-year giving season can include January 2011.

The Tax Relief Act signed by President Obama last Friday includes the long-awaited IRA charitable rollover. It allows donors over seventy-and-a-half to make a gift directly to your charity from their traditional or Roth IRA. January gifts can be claimed this year.

Please recognize that my analysis is based on my reading of the Joint Committee on Taxation Technical Explanation, 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.

Old Law-Giving from IRAs. A charitable gift that originated from your donors’ Individual Retirement Accounts had to be treated as any other IRA distribution. Your donors reported the distribution as income, presumably in the same year they would claim their charitable deduction for gifts to your charity. Thus, your donors had to pay additional income tax and the distribution benefiting your nonprofit could have put them in a higher marginal tax bracket. Many of us know from personal experience that the tax payment on the additional income deterred most donors from giving from often over-funded IRAs.

That was the state of the law before August 2006, when the Pension Protection Act created the “qualified charitable distribution.” PPA, via extensions, continued through 2009. All this year, we’ve been under pre-PPA law, waiting impatiently for new law. Enter the Tax Relief Act of 2010, to revive direct IRA giving.

New Law-Giving from IRAs. The Act permits charitable gifts that originate from an IRA, without your donors having to report their IRA distributions as income. (These really are “distributions,” not rollovers. I’m using the vernacular for its recognition, but it’s not technically correct.) Here are the requirements for a qualified charitable distribution under the just-signed Act:

    1. 1. Your donor is at least 70 1/2 years old on the date of gift
      2. The IRA is a traditional or Roth
      3. Maximum $100,000 per donor per tax year, aggregated across all qualified distributions
      4. The IRA custodian makes a distribution directly to your 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 dollars transferred would be includible in gross income if they were not within a qualified charitable distribution

Important Notes. Recognizing that 2010 has all but departed, the Act allows gifts in January 2011 to be reported by donors as if made on December 31, 2010. Your end-of-year giving from those 71 and over (let’s talk about age like people, not tax code) gets a one-month extension, if you have the consent of your gift processing office, CFO, auditors and gift crediting policy.

Your donors will find this significant. Amounts rolled over count against their annual required minimum distribution, and many elders are required to distribute to themselves (withdraw) more than they need. This isn’t as prevalent as it was in 2006 and 2007, because IRA balances used to calculate the minimum distributions are smaller than they were then, but overfunded IRAs still exist. After age 70 (OK, at 70 1/2) there’s a penalty for not withdrawing at least the required minimum, but your donors can work-off some of their required minimum distribution for 2010–in 2011– without increasing their 2010 gross income. Then they can do the same for 2011, in January, or anytime during the year. Only January qualified charitable distributions can count for 2010 or 2011, at your donors’ discretion.

(Interesting question: what if your donor is 70 1/2 when they make their January distribution, but wasn’t 70 1/2 on December 31? We’ll have to wait for guidance, or maybe we can presume IRS’s posture based on similar situations elsewhere. I’d say date of gift (12/31/10) controls, but that’s merely an early, and conservative, answer. Have an insight?)

January 2011 distributions that are claimed in 2010 also won’t impinge next year’s limit of $100,000. They’ll count toward this year’s maximum.

Fast-acting donors might prefer to rollover before December 31. I’m not fully confident that IRA custodians can accommodate that.

All charitable rollovers must be completed before January 1, 2012.

While traditional and Roth IRAs are eligible (and SIMPLE and SEP IRAs are not), the most likely gifts will come from traditional accounts. That’s because of number 6 above. Traditional IRAs are much more likely to be funded with dollars that would be included in gross income if not for the rollover, because those accounts are where contributions that are deducted from income (deductible) are made while working. Although Roth accounts cannot accept deductible contributions, there are true rollover scenarios where deductible dollars end up there. So, while it’s possible for Roth IRAs to hold dollars otherwise taxable on withdrawal, it’s not likely.

You may find it helpful to remember this generalization:

  • Traditional: Deductible from income on the way in, taxable on the way out.
  • Roth: Not deductible from income on the way in, not taxable on the way out.

The $100,000 annual maximum is per donor (IRA owner), not per retirement account.

Regarding number 4, while we were under the Pension Protection Act, the IRS explained in Notice 2007-7 that where a check payable to a nonprofit is delivered to the IRA owner by the account custodian, and the IRA owner delivers the check to the charity, the Service will consider that a direct distribution. I see no reason why that would not still apply.

Note also that distributions to supporting organizations and donor advised funds are not eligible.

Lastly, number 5 is significant. Qualified distributions are not charitable deductions from income. Instead, the tax advantage to donors is exclusion from gross income. Yet the gift amount must be such that it would be 100% deductible if it were not a charitable rollover, ignoring the 50% and 30% deduction limitations, and any income limitation that may apply.

That means your donors can’t use the charitable rollover to buy a table at your gala; or tickets to your sporting events; or pay for auction items. None of these gifts is 100% deductible. The deduction for each is reduced by the value received in exchange for the gift.

This requirement also disallows charitable gift annuities, remainder trusts and lead trusts. Neither earns donors a full face value charitable income tax deduction. (Their deductions are based on the present value of: what’s estimated to remain; estimated charitable remainder; and anticipated stream of charitable lead payments, respectively.)

The Commentary:

That’s Part II, tomorrow, when I’ll explain who’s a good prospect for an IRA rollover gift; give suggestions for promoting this to prospects (don’t forget your board–and Facebook); integrating this planned gift with your other fundraising channels; and why it’s not a tax “wash” when comparing this with an IRA withdrawal, then paying additional income tax, making a gift and claiming a charitable deduction. This might come up in your conversations with prospects and I can prepare you to answer that question (objection?) as you encourage rollover gifts in the coming months.

Check back tomorrow.