The IRA Charitable Rollover

Congress has recently extended the deadline to the Emergency Economic Stability Act of 2008 which included the extension of the IRA Charitable Rollover. President Bush signed this into law on October 1, 2008. You may remember that congress enacted similar legislation (the Pension Protection Act of 2006) which contained an IRA Charitable Rollover provision but which expired on December 31, 2007. The legislation has been reinstated retroactive to January 1, 2008 and extended through December 31, 2009, after which it will expire unless another extension is passed or new legislation makes it "permanent." 

This law provides an exclusion from gross income of otherwise taxable distributions of up to $100,000 per year from either traditional or Roth IRAs. To make a charitable IRA rollover gift, a donor must meet the following criteria:

  1. The gift must be from a traditional or Roth IRA (no 401(k)s, 403(b)s, etc.).
  1. The donor must be least 70½ years old.
  1. The gift must be to a public charity other than a supporting organization.
  1. The gift must not be to a donor advised fund maintained by the charity.
  1. The gift must be outright (no life income arrangements like a Charitable Gift Annuity).
  1. The gift, combined with other qualifying IRA charitable rollover gifts made during the year, must not exceed $100,000.

Ordinarily, an IRA owner must report withdrawals as income and pay tax on them, up to 40% or more in some places once you add federal, state, and local taxes together. Qualifying charitable IRA rollover gifts are not reportable as income, however, so they never create tax for the donor. A donor would have to report a similar gift from any other type of retirement plan as income, and then declare an income tax deduction. Not only would the gift be more complicated to execute than a charitable IRA rollover, but a variety of factors could prevent the deduction from completely offsetting the income, resulting in a net increase in taxes owed. 

It is also worth noting that a charitable IRA rollover counts toward a donor's minimum distribution requirement. For a donor who wants to make an outright gift to Wisconsin Lutheran College, it makes sense to fund the gift with IRA assets the donor would be required to withdraw anyway and use other assets, such as cash or proceeds from selling securities, to cover personal needs. 

An important point is that charitable IRA rollover gifts are very easy to make. All the donor needs to do is ask her IRA administrator to write a check from her IRA account to Wisconsin Lutheran College in the amount she wishes to give.

While charitable IRA rollover gifts will be attractive to many donors, a donor will receive the greatest tax benefits from a charitable IRA rollover gift in the following circumstances:

  1. The donor does not itemize deductions.
  2. The donor itemizes deductions, but will not be able to use all of them because she expects her total charitable gifts for the year to exceed 50% of her adjusted gross income.
  3. An increase in her income will cause a reduction of her personal exemptions and other adjustments that lower taxable income.
  4. An increase in her income will make more of her Social Security income subject to income tax.

Please contact Kris Metzger, director of planned giving, at (414) 443-8925 or for more information about making a gift through the IRA Charitable Rollover.