IRA rollover gifts gone, but not forgotten

A previous column explained the provisions permitting direct, tax-free gifts to charity from an IRA (referred to as an IRA Charitable Rollover) would expire at the end of 2007. And they did. But its benefits may still have a hint of life.

The law, as it was passed in 2006 for two years only, applied to those persons at least age 70 1/2, the latest date when a person must begin drawing down funds in their IRA account. The maximum amount of gifts under the old law was $100,000 per year. The benefit of the law that expired was that IRA owners who met the age requirements were permitted to make direct charitable gifts from their IRAs with no tax consequences, and the gift amount could also be applied to their required annual minimum distribution from the IRA. Admittedly, this law then was of benefit to only a small segment of IRA owners.

As the law now stands, an owner who has reached this age, and who wants to make a gift to charity from their fund must first draw out the money from their IRA, report it as income, and pay income taxes on the gift, but can claim an income tax deduction for the gift made. The additional income may place the IRA owner in a higher tax bracket, and it may affect the portion of the owner's Social Security payments subject to tax. Or if the gift is substantial in relation to the owner's income, it may exceed the allowable income tax deduction for the year.

Also, even if the owner does not need the income from his IRA, he/she must draw down his/her required minimum distribution, whereas for the 2006-2007 period the gift amount could be treated as part or all of the required minimum distribution (and not as income).

The rub of it then is that with the expiration of the law, there is no tax advantage today of making a gift to charity from your IRA and may be a tax disadvantage to doing so.

The good news is that neither the Senate nor the House have forgotten about the real benefit to both charities and the public that accrued with the permissions granted by the expired law, as many millions of dollars were gifted by IRA owners in 2006 and 2007. Moreover, there is still substantial support if both houses reinstate this bill, and even to broaden it beyond its limitations.

 

For example, the earlier law did not permit such gifts to be made through the use of charitable remainder trusts and charitable gift annuities, which the new proposals would allow. Some have proposed unlimited gifts, rather than limiting them to $100,000.

As much as I don't like saying this, if you are 70 1/2 or will be this year and have thought in terms of making a gift from your IRA to charity, you may be well advised to hold off that decision until later in the year, to see what Congress does with this proposed new law. If it is passed, it will probably be made retroactive to the beginning of 2008, but there is no guarantee that it will be passed and signed into law.

The Southwest Florida Community Foundation has been supporting the communities of Lee, Charlotte, Collier, Glades and Hendry through endowed funds for more than 30 years. With assets of more than $57 million and 314 endowed funds, the community foundation has provided more than $30 million in grants and scholarships to the communities it serves.

For more information, please call 274-5900, or visit their web site at www.floridacommunity.com.