Understanding the IRA Charitable Rollover
H.R. 2029, the Protecting Americans from Tax Hikes Act of 2015 permanently extended the IRA Charitable Rollover. Originally passed in 2006 as part of the Pension Protection Act, the IRA Charitable Rollover allows individuals age 70½ and older to make direct transfers totaling up to $100,000 per year to 501(c)(3) charities, without having to count the transfers as income for federal income tax purposes.
- Who qualifies? Individuals who are age 70½ or older at the time of the contribution (you have to wait until your actual 70½th birthday to make the transfer).
- How much can I transfer? $100,000 per year.
- From what accounts can I make transfers? Transfers must come from your IRAs directly to Adirondack Foundation. If you have retirement assets in a 401k, 403b etc., you must first roll those funds into an IRA, and then you can direct the IRA administrator to transfer the funds from the IRA directly to Adirondack Foundation.
- To what charities can I make gifts? Tax exempt organizations that are classified as 501(c)(3) charities, including Adirondack Foundation, to which deductible contributions can be made.
- Can I use the IRA Charitable Rollover to fund life-income gifts (charitable gift annuities, charitable remainder trusts, or pooled income funds), donor advised funds or supporting organizations? No, these are not eligible.
- Can I use the IRA Charitable Rollover to create a designated fund? Yes, designated funds qualify.
- What are the tax implications to me? Federal – You do not recognize the transfer to Adirondack Foundation as income, provided it goes directly from the IRA administrator to AF. However, you are not entitled to an income tax charitable deduction for your gift. State – Each state has different laws, so you will need to consult with your own advisors. Some states have a state income tax and will include this transfer as income. Within those states, some will allow for a state income tax charitable deduction and others will not. Other states base their state income tax on the federal income or federal tax paid. Still other states have no income tax at all.
- Does this transfer qualify toward my minimum required distribution? Once you reach age 70½, you are required to take minimum distributions from your retirement plans each year, according to a federal formula. IRA Charitable Rollovers count towards your minimum required distribution from the IRA for the year.
- Can my spouse also make an IRA Charitable Rollover, even if we are married and file jointly? Yes, every individual can use the IRA Charitable Rollover for up to $100,000 each year.
- How do I know if an IRA Charitable Rollover is right for me? You are at least age 70½, and: You do not need the additional income necessitated by your minimum required distribution, OR Your charitable gifts already equal 50% of your adjusted gross income, so you do not benefit from an income tax charitable deduction for additional gifts, OR You do not itemize deductions, OR You are subject to income phase-outs on your income tax deductions.
- What is the procedure to execute an IRA Charitable Rollover? We offer a sample letter you can send to your plan provider to initiate a rollover. Make sure that you contact us when you direct the rollover so we can look for the check from your IRA administrator.