President Obama signed the Protecting Americans from Tax Hikes (PATH) Act into law on December 18, 2015. As a result, the IRA charitable rollover is now available to qualifying taxpayers on a permanent basis.
IRA Charitable Rollover
The IRA charitable rollover is a concept which allows qualifying donors to exclude from taxable income certain transfers of Individual Retirement Account (IRA) assets made directly to eligible charities. This beneficial provision was first enacted back in 2006 as a temporary measure, requiring Congress to pass extenders to keep the provision in effect. Because of the temporary nature of the provision, some donors have been reluctant to make IRA charitable rollovers. The PATH Act finally makes the IRA charitable rollover available to donors from year to year with no looming expiration date.
Tax Benefits
Withdrawals from traditional IRAs and certain Roth IRAs are taxed as income, even if they are immediately directed to a charity. The donor receives a tax deduction for his or her donation, but various other federal tax rules can prevent the deduction from fully offsetting the taxable income arising from the withdrawal. As a result, prior to the IRA charitable rollover, many donors were hesitant to use IRA assets to make lifetime gifts to charities. The charitable IRA rollover removes the income tax barrier on qualifying transfers.
Requirements of an IRA Charitable Rollover
In order to make an IRA charitable rollover, the following requirements must be met:
-
The donor/IRA owner must be age 70 ½ or older
-
The transfer must be made directly from a traditional or ROTH IRA to a permissible charity
-
The transfer must be made in calendar year 2015 for the 2015 tax year
Limits on Amount Given
A donor's total amount of IRA charitable rollovers cannot exceed $100,000 per tax year.
Minimum Required Distributions
For donors who have not already satisfied their minimum required distributions for a tax year, the IRA charitable rollover counts toward meeting such requirement.
Rollover Only Available for an IRA
Transfers from a 401(k), 403(b), and other non-IRAs will not qualify for the IRA charitable rollover.
Rollovers Can Only Be Made to Certain Charities
Generally, an IRA charitable rollover can only be made to a public charity. Transfers to a donor advised fund, supporting organization, or private foundation will not qualify.
Act Quickly
The ability to make tax-free charitable gifts of up to $100,000 from an IRA is attractive to many. Those wanting to take advantage of the IRA charitable rollover for the 2015 tax year should act quickly to ensure that a qualifying transfer occurs by December 31, 2015.
