IRA Charitable Rollover
Background
On October 3, 2008 the Emergency Economic Stabilization Act of 2008 was signed into law. More commonly known as the $700 billion Wall Street “bailout” or “rescue” plan, the final version of this legislation also extended certain provisions of the Pension Protection Act of 2006, including the so-called “IRA Charitable Rollover.” This extension provides that, in each of the years 2008 and 2009, owners aged 70½ or older of traditional or Roth IRAs may “rollover” to public charities (including Clarkson) up to $100,000 without the distribution being included as taxable income, but allowing the distribution to count toward the annual mandatory withdrawal amount.
Note: The Worker, Retiree and Employer Recovery Act of 2008, places a one year moratorium on required minimum distributions from individual retirement accounts and defined contribution plans for 2009. The Act did not waive required minimum distributions for 2008.
Qualifications
Based on the original provisions of the Pension Protection Act of 2006:
· The donor (IRA owner) must be at least 70½ years old at the time a transfer (rollover) is made from the IRA to charity
· The transfer must be made from the IRA directly to a qualified charity
· The combined value of all transfers made (whether to one or more charities) cannot exceed $100,000 per taxpayer per taxable year
· Transfers may be made in each of the years 2008 and 2009
· A qualified charity is an organization described in section 170(b)(1)(A), other than an organization described in section 509(a)(3)
· Transfers are not included in your adjusted gross income for federal income tax purposes
· Transfers to charity may count as part of your annual mandatory IRA withdrawal amount
· IRA transfers to charity are not taken into account in determining the deduction eligibility of other charitable contributions
Additional Clarifications
The IRS issued these clarifications of the IRA Charitable Rollover in 2007:
· Charitable IRA distributions can satisfy pledges
· A person over age 70½ who is the beneficiary of an inherited IRA may make charitable transfers from that IRA
· Charitable transfers may be made from a SEP IRA or a SIMPLE IRA if no employer contributions were made to the IRA in the year of the transfer
· A qualified charitable distribution is not subject to withholding of income taxes
· The maximum total qualified charitable distribution amount each year is $100,000 per person, not per household, or per IRA account.
· The IRA administrator may issue a check payable to the charity and present it to the donor to deliver to the charity. The gift date then becomes the date the donor mails the check via the USPS or hand-delivers it to the charity
· Transfers cannot be made from 401(k) plans, but it appears allowable under certain circumstances for the donor to move a portion of the 401(k) into a Rollover IRA and then make a subsequent qualified charitable distribution from there
Cautions
There are several restrictions and issues to keep in mind:
· The transfer must be made from your IRA directly to charity, otherwise you must declare the distribution as income
· The IRA must be a traditional IRA or a Roth IRA; it cannot be an employer sponsored plan such as a SIMPLE IRA, a 401(k) or 403(b) plan or a simplified employment pension (“SEP”) plan
· Distributions from Roth IRAs are not taxed to the account owner, so it is still wise to determine if some asset other than the Roth IRA is best to give to charity
· Transfers are not deductible as charitable gifts
· You may receive no benefit from the charity for your transfer (e.g. tickets, dinners, etc.)
· Transfers cannot be made to charitable gift annuities, charitable remainder trusts or pooled life income funds
· Transfers cannot be made to donor advised funds, private foundations or “supporting organizations”
· The donor is responsible for and must obtain documentation for the transfer as he/she would substantiate any other gift to charity
· Transfers are made from otherwise taxable income first. Non-taxable income in your IRA may not be considered a qualified transfer and should be handled differently
· In some states (check with your advisor), IRA charitable rollovers may be includable in income for state and local tax purposes and may not earn an offsetting charitable deduction, depending on state and local law
· In some states (check with your advisor), IRA withdrawals up to a certain amount may not be includable for state income tax purposes, thus negating some benefit of an IRA charitable rollover at the state level.
Who might use this opportunity?
The “charitable rollover” provides a new method for using certain IRAs in philanthropic and financial planning:
· If the majority of your assets are in IRAs, it may be more convenient to make a direct transfer rather than reporting a withdrawal on your income tax return
· If you do not itemize your deductions, you may be able to make gifts from your IRA without increasing ( and maybe even decrease) your adjusted gross income
· If you already give up to your 50% charitable deduction limit of your adjusted gross income, this legislation may allow you to, in effect, exceed that limit in 2008 and 2009
· If you have accrued a “carryover” of charitable deductions from past tax years, this legislation would allow you to make gifts without impacting those carryover amounts
· If your level of income causes a phase-out of certain deductions, a rollover may allow you to make gifts without increasing (and maybe even decrease) your adjusted gross income
· It may simply be easier to make a transfer from your IRA to charity and not need to worry about the income tax implications
· If you’ve been thinking about making a larger gift, this may provide a tax-advantaged time-frame for doing it
· In some states (check with your advisor) a charitable deduction is not allowed for state tax purposes. A rollover that does not increase your reportable income may result in savings on state taxes as well
Because everyone’s financial position is unique, it is important for donors to consult their tax counsel and plan administrators before making gifts to charity from their IRAs.
Making a gift to Clarkson
IRA charitable rollovers must be requested by the donor directly from his/her IRA administrator. The process is not standardized across the industry, and each company will set its own policies and procedures, so you may wish to contact your administrator early in the process. The proper name to use in a transfer request is “Clarkson University,” and the federal ID number is 15-0543659. You may wish to provide this mailing address:
Office of Gift Planning
PO Box 5522, Woodstock Lodge
Clarkson University
Potsdam, NY 13699-5522
Click for a sample letter to your IRA administrator to request a transfer.
Click for a sample letter to notify Clarkson about your IRA charitable rollover request.
Click to contact Clarkson for help with questions.
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 10/09)