The Smart Giver
The IRA Charitable Rollover
A Tax-Saving Tool with A time Limit
The IRA charitable rollover was originally part of the Pension Protection Act of 2006, which went into effect, August 17th 2006. It was extremely popular and resulted in hundreds of millions of dollars of gifts to charities all across the country. However, it had a time limit and expired, December 31, 2007. The plan giving community and legislature fought hard to get the IRA charitable rollover back and it went into effect again, October 3, 2008. Again, it has a limited life and expired December 31, 2009.
IRA charitable rollovers are applied to people who are 70 and a half and over and have an IRA. IRA charitable rollovers allow a donor to make a gift to a qualified charity including their church directly from their IRA. The key is at this transfer is made entirely tax free. Tax free transfers are up to $100,000.00 per IRA are allowed. So this means, the husband and wife each with their own IRA both can give to up to a $100,000.00.
For churches, this is great news. First, many people’s only liquid asset is their IRA. Second, people on this age bracket generally have large IRA’s. If your church does a good job communicating to the members, the existence of this law of congress has enacted to make it easy and beneficial for donors to make gifts. There is no reason that church can’t receive gifts whole in the six figures.
In my view, the state of the economy has no bearing on the benefits of using the IRA charitable rollover. The key is to show what problems your members have that an IRA charitable rollover solves. Here are three quick examples.
First, when an IRA owner turn 70 and a half, the IRS says that they must start taking distributions from their IRA. This mandatory distribution increases each year and many people don’t want this extra income because they don’t need it and they have to pay tax on it. The person contributed the required minimum distribution to their church, they would have to itemize on their tax return in order to get a deduction. However, if the deduction was in the form of what IRA charitable rollover and then the amount equal to or greater than the mandatory distribution, then this satisfy the distribution requirement but it’s not tax. The donation has simply made directly from the persons IRA to the church.
Now, I do want to point out that the mandatory distribution requirement has been suspended for 2009. Using an IRA charitable rollover can prevent a person social security benefits from being taxed. And my experience, few things raised the IRA of the retirement community more than learning that they’re harder and social security benefits will be taxed. Depending on your income, marital status and income from interesting dividens, your social security benefits could be no tax at all to having 50% or 85% of them taxed. The IRA charitable rollover can lower the income use in the formula, which subjects to social security to taxation and either eliminate the tax or reduce it.
If your mortgages paid off and your medical expenses don’t exceed 7.5% of your adjusted gross income, you may choose not to itemize to simplify your tax preparation. Now, this means that any gift to your church would not be deductible. The IRA charitable rollover solves this problem. Since a rollover isn’t included in your income to start with, whether or not you itemize is not an issue.
If you’re a high income individual, an IRA charitable rollover can lower your taxes. The transaction has no bearing on the potential for your personal exemption to be faced out, losing 1% every itemized deductions or your income being subjected to the alternative minimum tax plus your gift can exceed the normal cash deduction to 50% of your adjusted gross income. If you see yourself in any of these scenarios, I would encourage you to explore the IRA charitable rollover. If you represent a church and have an interest in billing an endowment fund or raising more money, I would strongly suggest aggressively perusing the IRA charitable rollover provision before it expires.
This is Bob Cavanaugh with the Smart Giver.
Transcription by:
Scribe4you Transcription Services