As you are most likely aware, the President signed the historic $700 billion economic bailout plan Friday, October 3rd. While the primary purpose of the Emergency Economic Stabilization Act of 2008 was to authorize government purchase of mortgaged-backed securities, the Act also contains some incentives for charitable giving. From a gift-planning perspective, the most important was the extension of the IRA charitable rollover, which was first included in the 2006 Pension Protection Act and expired at the end of 2007. The rollover has now been extended through the end of 2009.
The new law provides that in 2008 and 2009, an owner of a traditional or Roth IRA may distribute to a public charity, up to $100,000 a year without the distribution being included in taxable income, and the distribution will count toward donor's mandatory withdrawal amount. To qualify for IRA rollover treatment:
- The donor must direct the IRA manager to transfer funds directly to a charity. (A withdrawal followed by a contribution still has to be reported as income.)
- The donor must be at least age 70-1/2.
- The donee must be a tax-exempt organization to which deductible contributions can be made.
- Donor-advised funds and supporting organizations are not eligible.
The new law does not include any terms of proposed legislation such as the Public Good IRA Rollover Act; therefore, in order to qualify the gift must be outright, not to a gift annuity or charitable remainder trust, and distributions from employer-sponsored retirement plans, such as Simple IRAs, 401(k)s, and 403(b)s, also don't qualify.
Giving through the Lutheran Community Foundation (LCF)
While donor advised funds are currently excluded from the Act, donors can use the provision to give to organizational endowment funds at the LCF and the LCF's Community Grant Funds, its unrestricted funds. The LCF Community Fund, the third most recommended charity by LCF donors, addresses the most pressing unmet needs in the Lutheran community and beyond. The LCF also offers its Sustaining Fund and eight field of interest funds -- gifts to these charitable funds support disaster response, scholarships and church body programs, among others.
Who's Likely to Use the Rollover?
Under old law, making a gift from an IRA is a two-step process. A donor would withdraw assets from their IRA, which would be included in their income for tax purposes, then make a gift of the withdrawn assets to charity. The deduction from the gift would offset the income taxes on the withdrawal. However, some donors either may not be able to offset the income from the withdrawal with the deduction, or don't want to increase their income with an IRA withdrawal. Therefore, a rollover of IRA assets directly to charity would be advantageous for:
- Donors who don't itemize their deductions.
- Donors who have maximized charitable deductions under the percent of AGI limitation.
- Donors with high income who might lose some other exemptions, credits and itemized deductions if income is inflated by the withdrawal.
- Donors with more modest incomes who are concerned that adding social security to their income would cause more of their payments to be taxable.
- Donors who reside in a state where charitable deductions are not deductible on their state income tax return.
- Donors that receive required minimum distributions from their IRA.
