Congress Approves IRA Rollover, Attractive Tax Incentives
Dec 1st, 2006 @ 4:21 pm | Author: VCSU Foundation & Advancement
The United States House and Senate along with President Bush have enacted a new law making it easier for donors 70 ½ years of age to give to the Valley City State University Foundation through their IRA or Roth IRA. The charitable incentives open up powerful new options in new charitable giving from IRAs. During the calendar years of 2006 and 2007 a person meeting the above criteria can gift up to $100,000 each year.
There are four requirements for a qualified IRA charitable gift. First, the IRA gift must otherwise have been includible ordinary income to the IRA owner. Second the IRA owner must be 70 years old or older. Third, the gift must be to a qualified exempt public charity, such as the Valley City State University Foundation. Fourth, the recipient may not be a private foundation, supporting organization or donor advised fund.
Fortunately, the IRA charitable rollover will qualify for the donor's required minimum distribution (RMD). The Congressional Joint Committee on Taxation Technical Explanation of PPA 2006 (JCX-38-06) states on page 266, "Qualified charitable distributions are taken into account for purposes of the minimum distribution rules applicable to traditional IRAs to the same extent the distribution would have been taken into account under such rules had the distribution not been directly distributed under the provision."
There is no charitable income tax deduction, but also no inclusion. It is simply a very convenient way to help the Valley City State University Foundation. Donors can give to 50% of adjusted gross income from their regular assets and then make "over and above" gifts from their IRA. Some generous donors may in effect give 100% or more of income per year through this method. Since the IRA is not included in taxable income, it will have no impact on their regular income and other charitable gifts.
Many senior donors may not have a sufficient level of deductions to itemize and choose instead to use the standard deduction. If senior donors withdraw $1,000 from his or her IRA and then gives it the Valley City State University Foundation, there is $1,000 of increased income with no offsetting charitable deduction, since the standard deduction is taken. Therefore, it will be preferable for all donors taking a standard deduction to make IRA gifts directly to the Valley City State University Foundation and avoid the additional income tax otherwise payable.
Social Security is subject to two levels of taxation. For donors who have income in excess of the first level, 50% of Social Security is taxed. For donors with income in excess of the second level, up to 85% of Social Security income may be subject to tax. Withdrawing an amount from an IRA will potentially cause the recipient's income to increase from the 50% taxable bracket to the 85% Social Security taxable bracket. Even though the withdrawn amount is given to the Valley City State University Foundation and deducted, there still is taxation with the added 35% bracket. Thus, by making the transfer directly to the Foundation, many Social Security recipients will save substantial taxes.
The $100,000 IRA charitable gifts provision opens up many new gift opportunities to the Valley City State University Foundation. Please contact Larry Robinson at the Foundation at 701-845-7217 or visit with your allied professional to explore all of these gift benefits for this new legislation. You can find further information on the IRA Rollover legislation on the Planned Giving Page of our web site, alumni.vcsu.edu.