Hendricks County-On December 18, Congress passed the PATH Act, which renews and makes permanent the Charitable IRA provision of 2006, making it easier for Americans to give to causes they care about. This provision has the power to help local charities strengthen their communities by allowing individuals to roll over up to $100,000 annually from an Individual Retirement Account (IRA) to charity without being federally taxed.
The bill allows individuals age 70½ or older to transfer up to $100,000 from an IRA to a qualified public charity free of federal income tax. The amount transferred can also be used to satisfy a donor’s required minimum distribution (RMD). A charitable rollover is a simple way to make a gift.
“It is a win-win-for people who would rather give to charity than pay taxes and for the nonprofit organizations they choose to support,” said William Rhodehamel, Executive Director of the Hendricks County Community Foundation.
Thanks to decades of deliberate saving, some of today’s retirees have more money in their IRAs than they need for daily living expenses and long-term care. Charitable individuals and couples have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which reduces the value of the gift. Others are concerned about designating their children as IRA beneficiaries, since that may draw unintended tax consequences.
“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” Rhodehamel said. “Experts estimate heirs may receive less than 50% of IRA assets that pass through estates.” A provision in the federal law extends this special option: transferring IRA assets directly to charity. By going directly to a qualified public charity such as the Hendricks County Community Foundation, the money is not included in the IRA owner’s income and-most important-is not taxed, preserving the full amount for charitable purposes.
Here are the nuts and bolts:
- You must be an IRA owner age 70½ or older to be eligible.
- You must notify your IRA custodian to make a direct transfer of the distribution amount from the IRA to our organization.
- The distribution counts toward your required minimum distribution, and you pay no tax on the distribution.
- Up to $100,000 of the amount transferred qualifies for this beneficial tax treatment.
Points to keep in mind when considering a charitable rollover:
- Provisions in the bill make the rule effective for all of 2015. Donors who transferred IRA funds directly to a qualified charity this year and met the age requirements should check with an advisor to determine if their transfer qualifies as a tax-free charitable rollover.
- Each tax situation is unique. Given the brief window of time left to make a charitable rollover in 2015, it is essential that donors consult their advisors immediately and work closely with their IRA custodians to assess each individual situation.
“This really is a powerful and limited opportunity. The window is open now, but will close at the end of the year,” said Rhodehamel. “And when combined with our current Lilly Endowment GIFT VI matching grant this is truly a fantastic opportunity. For anyone interested in establishing a permanent legacy in this community, this is the opportunity of a lifetime to make the gift of a lifetime.”