On December 18 of last year, Congress passed and President Obama signed into law a permanent “IRA Charitable Rollover” provision, which has been available on a temporary basis in different years in the past.
With this, an IRA owner over age 70½ may make a transfer of up to $100,000 per year to a qualified charity or ministry. These IRA charitable rollovers will be tax-free and not included in adjusted gross income.
We are pleased to say that Lutherans For Life qualifies for an IRA rollover gift!
An IRA Charitable Rollover may fulfill part or all of your minimum distribution (RMD), which IRA owners who are at that age or older are required to take each year. In nearly all cases, this distribution from a traditional IRA produces ordinary income for the recipient. Under the extension of the law, the donor pays no income tax since their distribution is going to ministry instead of to them personally.
Because the distribution is not included in taxable income, there will be no charitable deduction. Thus, this form of donation is beneficial for high-income taxpayers who itemize deductions because itemized deductions for these individuals are subject to a “cutback” provision which reduces the tax benefit. It is also beneficial for those taxpayers who do not itemize deductions (the majority of taxpayers do not itemize deductions).
While a gift of up to $100,000 will qualify, it does not need to be at that level. An IRA gift to a ministry or ministries anywhere from $1-100,000 is allowed.
The IRA Charitable Rollover has proven to be very popular with taxpayers and beneficial to charities. It was first enacted as a temporary charitable giving measure, originally set to expire on December 31, 2007. Both at that time and in following years when it was set to end, Congress has extended the provision. Most recently, this was through December 31, 2014. No action was taken in 2015, however, until the last month of the year.
Of course, charitable agencies and associations have been lobbying continuously to have the provision made permanent, but it never has been.
Since it is now available, how do you go about making a gift from your IRA of $1,000, $5,000, $10,000, or any amount to (for example) Lutherans For Life?
To do so, the donor must make their gift directly from their IRA to Lutherans For Life (or any charity). If you ask that it be sent to you first, and then you write a check to the ministry, you will still owe ordinary income tax (and alternative minimum tax if applicable to you) as if the charitable rollover were not in place.
There are also some other limitations in the provision:
Gifts must be from an IRA. Those from another tax-deferred account, such as a 401k, 403b, deferred annuity, etc., are not permitted.
Distributions from an IRA to set up or fund a life-income gift, such as a Charitable Gift Annuity (CGA) or Charitable Remainder Trust (CRT), do not qualify.
Also not permitted are gifts to donor-advised funds (e.g., established at a Lutheran church foundation) or a private foundation.
And, as stated earlier, a donor must be at least 70½ and the maximum that can be given in any one year is $100,000.
There is some hope that in the future some or all of the limitations will be eliminated. Charitable groups continue to educate policymakers on the benefits that would be provided by dropping the donor age threshold, allowing qualifying distributions to come from other deferred accounts such as 401k accounts, permitting gifts to fund CGAs or CRTs, etc. We will certainly notify you on any future changes.
Any consideration to making a gift via your IRA to LFL in 2016 is most welcome (and these donations are needed)! If you have any questions or need more information, please feel free to contact me at 512.468.9777 or firstname.lastname@example.org.
Many thanks in Christ for your interest and consideration.
Please note this article is not intended as legal or financial advice. For assistance with specific cases, you are encouraged to seek the advice of an attorney or other professional advisor.