The era of tax-free rollovers from a donor’s IRA to qualified charities began with the Pension Protection Act of 2006. The ability to use this resource for charitable purposes, limited though it may be, may not seem all that significant, but remember that Americans have trillions in retirement assets. For better or worse, the IRA charitable rollover was enacted as one of a number of temporary tax provisions, or extenders, that require periodic renewal.
Once again, at least at the time of this writing, the IRA charitable rollover is in limbo. The last of what have been biennial extensions expired on December 31, 2014. The experts and pundits seem to think it will eventually be renewed through 2016, either before the end of this year or shortly thereafter, and will be retroactive to January 1, 2015. We have even heard that permanent versions of several of the tax extenders, including the IRA charitable rollover, are under consideration. Hopefully by the time you read this, the law will be in place in some form.
The IRA charitable rollover allows individuals age 70½ or older to make tax-free gifts totaling up to $100,000 directly to qualified charities from traditional or Roth IRA accounts – both to save the penalty tax on contributions made less than five years before the distribution is taken. If spouses both have IRA accounts, each may make gifts of up to $100,000 from these accounts. While a charitable income tax deduction for gifts from IRAs cannot be claimed, the distribution directly to a charity does not trigger income tax and does count toward the IRA account holder/donor’s required minimum distribution for the year.
In summary, the IRA charitable rollover is a tax-free transfer from the IRA account to public charities such as the Greater Miami Jewish Federation. The transfer must go directly from the IRA administrator to the charity, but donor advised funds, supporting organizations and private foundations do not qualify. Federation donors most commonly apply these funds to redeem their commitments to the Annual Federation/UJA Campaign, special projects, or to create or add to any permanent endowment.
The IRA charitable rollover encourages charitable giving and provides those with large IRAs an option to making large taxable withdrawals from their IRA accounts once they reach 70 ½ years of age. Charities are concerned that the requirement for periodic renewal and Congress’ tendency to not act on it until mid-December or later in the years it must be renewed inhibits the IRA charitable rollover’s utility for taxpayers unnecessarily. Few account holders wish to be making decisions about their required minimum required distribution at the very last minute.
In past years when the legislation was up for renewal, some professional advisors and charities (but not many plan administrators) have encouraged their clients/donors to make charitable gifts from their IRAs by direct transfer right at the end of the year, betting Congress would act, which it has always eventually done. The thought has been that even if Congress ended the program, the clients/donors could always take the distribution as taxable, meet their minimum distribution requirement and deduct the charitable contribution.
There is an alternative. Your clients, certainly those older than 59½, can always use funds from IRAs to underwrite their philanthropy, at any time of year, with or without the benefit of the IRA rollover legislation. Taking this money under age 59½ will cost the client the 10% penalty tax, and would almost always be ill-advised. However, if willing to pay the income tax, your client can take the money for any reason at all. If the money is then contributed to charity, the gift entitles your client to a charitable income tax deduction. There is a small chance the tax on the IRA distribution may exceed the tax savings earned by giving it away. However, if your Florida-resident (no state income tax) client itemizes and is otherwise able to enjoy the maximum benefit of the charitable income tax deduction, this should not be a concern. We recommend our donors consult their professional advisors and run the numbers if considering this approach.
IRA charitable rollovers can be especially attractive if your clients have assets in their IRAs they may be thinking of leaving to charity, if they are considering making a large one-time gift or if they do not itemize deductions. Charities will be watching developments closely. Once the law is extended, they will be encouraging your clients to contact their IRA administrators for specific instructions as to how to complete an IRA charitable rollover.
The resources of The Foundation of the Greater Miami Jewish Federation are available to you and your clients in complete confidence and without obligation as you consider these and other charitable possibilities for retirement assets that could otherwise be heavily taxed. These gifts may offer your clients the opportunity to fulfill their charitable objectives in a tax-wise manner, inspire and engage the next generation of their families and create a lasting legacy. For more information, please contact Foundation Director Steve Lande at firstname.lastname@example.org, or at 786-866-8623, or consult JewishMiami.org.
Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as the Greater Miami Jewish Federation’s Authorized House Counsel. Prior to joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Lande earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Pittsburgh Jewish Federation.
By Stephen C. Lande
4200 Biscayne Blvd.
Miami, FL 33137
South Florida Legal Guide 2016 Edition