IRA Charitable Rollover Giving
What is an IRA Charitable Rollover
The law uses the term “qualified charitable distribution” to describe an IRA charitable rollover. A qualified charitable distribution is money that individuals who are 70½ or older may direct from their traditional IRA to eligible charitable organizations. The provision has a cap of $100,000 for charitable distributions from individual IRAs each year. Individuals may exclude the amount distributed directly to an eligible charity from their gross income.
Does a donor also receive a charitable deduction when they roll over assets to a charity under this provision?
No. Under this provision, donors benefit by not having to recognize the amount contributed directly from their IRA to a qualifying charity. However, because donors exclude this contribution from their gross income, they cannot take a charitable contribution deduction for the contribution; to do so would result in a double benefit for donors and that is explicitly prohibited.
To which charities may donors make qualified charitable distributions?
Most contributions to public charities — (the MDA Foundation is a public charity) — are considered qualified charitable contributions.
Is a donor limited to one IRA Charitable Distribution per year, or can a donor request multiple transfers?
Donors aged 70 ½ or older are limited to a maximum of $100,000 in any one year as an IRA charitable distribution, however there is no requirement that the entire amount be made in one transfer or that the entire amount go to a single qualified charitable organization. Donors can request multiple direct transfers from their IRA to qualified charities in a year, but only $100,000 will be excluded from income as an IRA qualified charitable distribution.
What if donors want to contribute more than $100,000 to a qualified charity from an IRA?
The law limits the amount that donors are able to exclude from their income to $100,000. If donors wish to take funds from their IRA to contribute more than $100,000 to charity, they cannot exclude the additional amount from their gross income.
Under what circumstance will this special treatment of an IRA Charitable Rollover most likely benefit donors?
Generally, this new provision benefits donors who itemize deductions and whose charitable contributions are reduced by the percentage of income limitation. Traditionally, when individuals receive a distribution from their IRA and make a corresponding charitable contribution, they must count the distribution as income and then receive a charitable deduction for any amounts they transferred to charity. For higher income taxpayers (see your financial adviser for your specific circumstance), the charitable contribution deduction received may not totally offset the taxes that must be paid for receiving the distribution from their IRA. In such cases, donors would potentially benefit more by using the charitable rollover provision when making a charitable donation.
Other donors who may benefit: individuals who do not usually itemize their deductions and individuals in states where the operation of state income tax law would offer greater benefits as a result of a charitable rollover. Donors will need to work with their professional advisers to determine the effect of these rules on their specific tax situation.
This provision will also likely benefit donors whose charitable contributions are reduced by the itemized deduction reduction.(See your financial adviser for your specific circumstance.)
How do individuals make a qualified charitable distribution?
Individuals must instruct their IRA trustee to make the contribution directly to an eligible charitable organization.
Must the MDA Foundation physically receive the check by Dec. 31 or can the check be placed in the mail on Dec. 31?
To take advantage of the IRA charitable distribution, the distribution must be sent directly from the IRA company to the charity. IRS Publication 526 explains that generally, the date of mailing qualifies as the date the gift is made. Accordingly, if the IRA company mails the distribution check to the charity by Dec. 31 of any given year, it will be counted as an IRA distribution in that same year.
Will I receive a gift acknowledgement?
Yes. Individuals making a charitable contribution using IRA funds must obtain a contemporaneous written acknowledgement of the contribution to benefit from this new provision.
Can a charity provide goods or services in return for the contribution?
No. If donors receive any goods or services (e.g., tickets to a fundraiser) the rollover of assets from an IRA will not qualify for the tax-free treatment under this provision.
How will charitable distributions impact the minimum required distribtutions from a taxpayer’s IRA?
Shortly after individuals reach the age of 70½, they are generally required to receive distributions from their traditional IRA. For the purposes of minimum required distributions, the IRS treats distributions from an IRA the same, whether individuals use the distribution for personal purposes or direct the distribution to a charity.
Who should I contact with questions?
Contact the MDA Foundation at 517-372-9070 or by emailing [email protected].
This information is based on our continuing analysis of the relevant legislation and regulations. We make every effort to ensure accuracy of this document. The information is not a substitute for expert legal, tax, or other professional advice, and we strongly encourage donors to work with counsel to determine the impact of this legislation on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.