A New Tax Incentive for IRA Gifts

If you are age 70 1/2 or older, new legislation now allows you to make cash gifts up to $100,000 a year from your IRA or Roth IRA to qualified charities without incurring income tax on the withdrawal. This is good news for Gorge supporters who want to make a charitable gift during their lifetime from their retirement assets, but have been discouraged from doing so because of the tax penalty.

The provision, H.R. 4 the Pension Protection Act of 2006, is effective for tax years 2006, 2007, and newly extended to the end of 2008.  Details of the Act are as follows:

• The individual for whose benefit the plan is maintained must have attained the age of 70 1/2 or older at the time of the gift.

• Qualified charitable distributions may not exceed $100,000 in total for any taxable year.

• Qualified distributions must be made directly to the charity by the plan trustee. Contact your plan trustee for information on how to initiate a transfer.

• Qualified charitable distributions may be excluded from gross income for Federal Income tax purposes. However, no federal income tax deduction is available. Certain states may not exclude gift amounts withdrawn from an IRA for state income tax purposes.

• Only outright gifts are eligible. Distributions to charitable gift annuities, charitable remainder trusts and other split-interest arrangements do not qualify under this program.

• Qualified contributions are not subject to the deductibility ceiling (50% of Adjusted Gross Income) or the 2% rule that requires that itemized deductions be reduced by 2% of AGI in excess of $150,000 for tax year 2006.

• Gifts from retirement accounts other than IRA’s such as 401k, 403b, and SEP accounts are not eligible. Donors may be able to make qualified transfers of money frm other accounts to their IRA and then make a charitable gift from their. Check with your tax advisor.

Who benefits from the provision?

• Individuals who take mandatory minimum withdrawals, but don’t need additional income.

• Individuals who wish to give more than the deductibility ceiling (50% of AGI)

• Individuals who are subject to the 2% rule that reduces their itemized deductions.

• Individuals whose major assets reside in their IRA’s and who wish to make a charitable gift during their lifetime.

• Individuals who intend to leave the balance of their IRA to charity at death anyway.

Please Note: This summary was prepared as an educational service to our members and others interested in supporting Friends of the Columbia Gorge. Please consult your own legal or tax advisor before making any decision based on this information.