IRA owners, in 2007 you can makecharitable contributions directly from your IRA without taking a taxable withdrawal first.
If you are over 70-1/2, you are required to take an IRA distribution each year. This Minimum Required Distribution (MRD) must be included in your federal and Ohio income when you file your tax returns. Now, instead of personally taking that distribution, you can ask your IRA custodian to make a “qualified charitable distribution” to a public charity –such as Lutheran Metropolitan Ministry. Your gift can support all of LMM or you can designate any LMM program or endowment fund. The qualified charitable distribution offsets your minimum required distribution.
For example, if you are required to take a $4,600 distribution in 2007, you can tell your IRA custodian to send that money directly to Lutheran Metropolitan Ministry. When you handle your required distribution this way:
you meet the requirement for taking your annual withdrawal (MRD)
the $4,600 is not reported as income on your tax returns (the taxable portion of your social security income may also be reduced)
the distribution is not itemized as a contribution
You may have a small IRA that is more of a nuisance than a source of income. You can make life simpler and reduce your estate by giving it away this year -- up to $100,000. The IRA "qualified charitable distribution" rule is set to expire December 31, 2007.
As you complete the form provided by your IRA custodian, you may need the following information: Lutheran Metropolitan Ministry is a 501c(3) organization, federal ID 34-1043756. The LMM mailing address for gifts is: P.O. Box 76736, Cleveland, OH44101.
For other information, call Ward Pallotta at 216-658-4640.
Thanks to Crescendo Interactive for this summary of the new law.
On August 17, 2006 President Bush signed the Pension Protection Act of 2006 (PPA 2006). Sec. 1201 of that bill permits current gifts through IRA charitable rollovers. Rollovers during 2006 or 2007 may be made in any amount up to $100,000 and shall be called "qualified charitable distributions."
IRA Rollovers Limited to Public Charities. IRA rollovers must be to public charities by IRA owners 70-1/2 and older. Designated charitable purposes or field of interest fund gifts are permitted but IRA rollovers may not be made to private foundations, donor advised funds, supporting organizations or to deferred gift plans. Only regular and Roth IRAs qualify for the rollover. Donors with other qualified retirement plans may be able to roll them over to an IRA and then use the IRA rollover to make a gift.
IRA Rollover Effective Now. The IRA rollover is effective immediately. IRA owners should contact their IRA custodian to direct transfers to qualified public charities. The specific transfer and reporting forms will be determined by the IRA custodian and the Treasury. However, the good news is that the IRA distribution to charity will be similar to non-charitable IRA rollovers in that the distribution will not be included in the donor's federal taxable income.
Simplifies Tax Return - Required Minimum Distribution. While there is no charitable income tax deduction for the IRA rollover, the distribution is not included in the donor's taxable income, thus simplifying the donor's tax return and saving some tax. An added bonus is that an IRA rollover by Dec. 31 of this year will qualify for all or part of the IRA owner's required minimum distribution for 2006.
Who May Want an IRA Rollover? Charitable IRA rollovers will be favored by at least five types of IRA owners.
Convenience Donor. An IRA Convenience Donor will merely enjoy the easy, simple way to make a charitable gift.
Standard Deduction Donor. The Standard Deduction IRA Donor will avoid taking the IRA distribution into income, but does not receive a deduction for the charitable gift. The IRA rollover for all or part of the required distribution will benefit charity. But it results in lower taxable income for the standard deduction donor.
Social Security IRA Donor. The Social Security Donor may be taking an IRA required distribution that increases income to a level where 85% of his or her Social Security is taxable. By using the IRA charitable rollover, his or her income may be lower and only 50% of Social Security payments may be taxable.
Generous Donor. The Generous Donor may give over 50% of income by using an IRA for charitable gifts over the usual deduction limit.
Major Donor. A Major Donor may give the full $100,000 per year. While there is no added deduction, avoiding an additional $100,000 of taxable income may save substantial income taxes not otherwise available due to deduction floors and phase-outs at the higher income level. The IRA rollover will be favored by many major donors and their tax advisors to simplify taxes and keep income levels lower.
November 13, 2006 -- GiftLaw Weekly Newsletter
Treasury Explains IRA Rollover Reporting
Sen. George Allen (R-VA) recently forwarded a constituent letter on the IRA rollover to Treasury. The IRA owner had asked his custodian to transfer a gift of $1,000 from his IRA directly to a qualified public charity. He also requested a statement from the IRA custodian that he would not receive a Form 1099 showing the IRA distribution as taxable income.
The IRA custodian responded that the IRS has not provided guidance on IRA rollovers and therefore it would be necessary to show the IRA distribution to the IRA owner on Form 1099, even though the $1,000 was sent to the selected charity.
In response to the request from Senator Allen, Treasury Assistant Secretary Kevin Fromer clarified the IRS position. He noted that the IRA custodian should report the IRA rollover "as a regular distribution on 1099-R. The 2006 Form 1099-R and procedures for completing and filing that Form for 2006 were finalized before the enactment of PPA. However, not all amounts reported as regular distributions on 1099-R are subject to income taxation. Thus, there will be a procedure on the 2006 Form 1040 for taxpayers who are eligible under the new PPA provision to exclude direct distributions to charities from their IRA."
Editor's Note: Since the Pension Protection Act of 2006 was not signed until mid-August, the IRS and custodians were not prepared for reporting 2006 IRA rollover gifts to charity. As a result, it appears that custodians who make the IRA rollover transfers to charity will report the gift in the normal distribution section on Form 1099-R. When each IRA charitable donor completes his or her Form 1040, there will be a separate line for IRA charitable rollover gifts and another line for other charitable gifts. The IRA charitable distribution will not be included in the adjusted gross income of the IRA owner.
