The Pension Protection Act of 2006, signed into law in August of 2006, is a comprehensive re-write of pension laws. It includes a key provision concerning IRA rollovers to charity.
In brief, the IRA rollover provision allows otherwise taxable distributions of up to $100,000 during each taxable year from a traditional IRA or a Roth IRA to charity to be excluded from gross income. Additionally, the amount rolled over will count against a donor’s minimum required distribution. The rollover can be made during the donor’s lifetime. Note: These gifts are non-taxable, non-deductible and do not impact the charitable donation limitation.
- The donor must be 70 ½ years of age or older on the date of the transfer.
- The donor must transfer the funds directly from the IRA to a qualified charity (trustee to charity transfer).
- Gifts cannot exceed $100,000 per taxpayer per year; and
- Gifts must be outright. In other words, transfers to donor-advised funds, private foundations or supporting organizations, charitable remainder trusts and charitable gift annuities do not qualify.
- Gifts can be used to fulfill an outstanding pledge, make a gift to a capital project, establish an endowed fund and/or make a donation to the Annual Fund.
- This provision is effective until December 31, 2007, thus it applies to two tax years, 2006 and 2007. To enjoy the full benefit of this opportunity, transfers must be completed each year prior to December 31 of that year.
Benefits for younger persons
As with prior law, for donors between the ages of 59 ½ and 70 ½ , the Pension Protection Act offers an ancillary benefit: Funds may not be distributed directly to charity but can be withdrawn from an IRA or another retirement account and then donated to the charity without payment of 10% penalty for early withdrawal.
Before taking any such actions, you should consult your tax and/or financial advisor about the best ways to take advantage of these new charitable giving opportunities. Individual circumstances differ, and state as well as federal tax laws may affect your plans.