IRA Charitable Transfers Fact Sheet New law allows for tax-free giving from IRA's On August 17, 2006, President Bush signed the Pension Protection Act of 2006 into law. The new law includes a charitable giving provision that permits new tax-free distributions from IRAs-known as the charitable IRA rollover. This may be a very sensible option for many Mount alumni and friends. This new provision provides an exclusion from gross income for certain distributions of up to $100,000 from an individual retirement account (traditional or Roth), which would otherwise be considered taxable income. To qualify, the charitable gift must be made to a tax-exempt organization like Mount St. Mary’s University. If you have saved tax-deferred income in an IRA and must begin taking required minimum distributions [see footnote 1 below] from that account(s) at age 70½, you'll pay income tax on that amount. By making a gift to charity from your IRA in an amount equal to or more than the required minimum distribution for that year, you can accomplish your charitable goals and reduce your tax liability. Please note the following requirements: - You must be 70½ years of age
- Tax benefits apply to gifts up to $100,000 per year- tax years 2006 and 2007
- The provision expires December 31, 2007
- The amount must be in the form of an outright gift.
Example: Joseph Smith has several traditional IRAs totaling $1,500,000. In May, he celebrated his 71st birthday. That means that, in 2006, his required minimum distribution from these accounts will be $54,745. [see footnote 2 below] Under the new law, Joseph can instruct his plan administrator to transfer that amount to Mount St. Mary’s University as a charitable gift to avoid the taxable event that additional income would have triggered. Who can benefit from a charitable IRA rollover? Anyone who turned 69 years of age by July 2, 2006, will be eligible to make a charitable rollover from IRA assets before the provision expires on December 31, 2007. While other planned giving options are available to Mount St. Mary’s University alumni and friends, the charitable rollover may be particularly appealing if: - You have maxed out your charitable deductions.
A qualified charitable distribution operates separately from the percentage rules that limit the tax benefit of individual charitable giving. Therefore, for individuals inclined to give more, the charitable IRA rollover is an ideal option. Because qualified charitable distributions from IRAs do not require the donor to claim an income tax charitable deduction, non-itemizers can take the equivalent of a charitable deduction via the IRA rollover and indicate that on the front page of the IRS Form 1040 without itemizing. - You currently reside in a state that does not allow itemized charitable deductions.
As a general rule, most states follow the federal income inclusion rules. That means donors in a state where the tax incentive for giving was limited by the old rules could realize an additional benefit. You should verify the impact of the charitable provisions of the new law in your state. New freedom to make the gift of a lifetime today Because as much as $100,000 of your gift of IRA assets can be excluded from taxable income for years 2006 and 2007, Mount St. Mary’s University alumni and friends have an opportunity to reach even further to make gifts now that have a tremendous impact on the university. A gift through your IRA counts like any other outright gift and can be designated for named scholarships, restricted or general purpose funds, capital purposes and endowments. Plus, if you currently have outstanding pledge amounts, an unfulfilled Mount St. Mary’s University Annual Fund commitment, or if you are approaching an important reunion year, this is an ideal opportunity to stretch to meet those goals. Making the gift: A few things to know about a QCD  In order for the amount transferred from your IRA to Mount St. Mary’s University to be a qualified charitable distribution (QCD), current rules stipulate that the funds be transferred directly from the plan administrator of your IRA to Mount St. Mary’s University (see figure A). You are required to contact the plan administrator to request the transfer. We encourage you to inform Mount St. Mary’s University directly of the imminent gift from you. At that time you can designate how the funds will be used. Sample letters are enclosed or if you would like more information contact Mount St. Mary’s University's Office of Gift Planning. Finally, as always, you will receive a gift receipt from Mount St. Mary’s University confirming the amount of the gift and the date it was received.
1 Required minimum distributions are calculated by dividing the total value of retirement assets by the donor's life expectancy, which is determined by the Internal Revenue Service. The donor's current life situation, including the age of his or her spouse, can also be a contributing factor. 2 This example is calculated with Uniform Lifetime Table life expectancy of 27.4 years. back to the top of the page
Donors should consult their tax advisors about charitable distributions from an IRA and the advisability of making such contributions. Please contact us if you have questions or if we can assist you in any way:
Mount St. Mary’s University
Office of Gift Planning
877-630-6102, option 1 (toll-free)
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