Jewish Federation of Northeastern Pennsylvania

IRA Charitable Rollover Legislation Extended

As part of the large financial rescue package, Congress has voted to retroactively extend the IRA charitable rollover provision from January 1, 2011 through December 31, 2011. This action reinstates the rollover as enacted by the Pension Protection Act.

How does the IRA Rollover work?

Taxpayers age 70½ and older are required to make annual distributions from their retirement accounts. The distributions are included in the taxpayers’ adjusted gross income (AGI), and taxpayers pay taxes on them.

The Charitable IRA Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their AGI and, consequently, without paying taxes on them.

Who benefits from the IRA Rollover?

• Donors who do not depend on their required minimum distributions for income and are interested in making a highly tax-advantaged gift of significance.

• Taxpayers who don’t itemize their deductions. The IRA rollover most benefits the nearly two-thirds of Americans who do not itemize deductions on their annual income tax returns and therefore do not receive a tax benefit for their charitable contributions. Non-itemizers include lower- and middle-income taxpayers, as well as an estimated 5.2 million higher-income individuals.

• Itemizing taxpayers who’ve reached the charitable giving limit. Donors who itemize their taxes are prohibited from deducting more than 50% of their AGI for the purpose of making charitable donations. However, donations from an IRA are excluded from the percentage limit, allowing individuals who have reached the 50% threshold to give more.

• Taxpayers whose tax deductions decrease as their income increases. Several federal tax deductions – dependent and personal exemption deductions and deductions for medical expenses and non-business casualty losses, for instance – become smaller as a taxpayer’s income increases. By making charitable donations from an IRA, rather than making regular, required distributions that qualify as income, taxpayers keep their annual income down and qualify for other tax deductions.

• Qualified charities, like the Jewish Federation of Northeastern Pennsylvania Endowment Fund, that are depending on significant gifts this year more than ever to help support the ongoing and growing needs in our Jewish communities both locally and globally.

What do you need to know to take advantage of the IRA Rollover?

• Age Requirement. You must be 70½ years old or older when the distribution is made.

• Donation Limit. Your total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year. Charitable contributions from an IRA totaling more than $100,000 will not be eligible for tax-free treatment and will be counted as part of your annual gross income.

• Eligible Charities. Any charitable contributions you make from an IRA must go directly to a public charity. Contributions to supporting organizations, donor-advised funds, and private foundations, except in narrow circumstances, do not qualify for the tax-free treatment.

Before making an IRA rollover contribution, contact the recipient charity to confirm that it is eligible to receive tax-free gifts from IRAs. The charity’s determination letter from the IRS will indicate whether it is a qualified charity, exempt under Sections 501(c) and 509(a)(1), 509(a)(2), or 509(a)(4) of the Internal Revenue Code; or, if it is an ineligible supporting organization, exempt under Section 509(a)(1)(3).

• Eligible Retirement Accounts. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment. You can give your required distribution to a qualified charitable organization without having to count it in your taxable income.

• Directly to the Charity. Distributions must be made directly from the IRA trustee payable to the public charity.

• No Gifts in Return. You cannot receive any goods or services in return for charitable IRA rollover contributions in order to qualify for tax-free treatment. Ineligible benefits include auctions, raffle tickets, fundraising dinners, or any other type of quid-pro-quo transactions.

• Written Receipt. In order to benefit from the tax-free treatment, you must obtain written substantiation of each IRA rollover contribution from each recipient charity.

Given the potential benefits to you, you may want to act quickly. We encourage you to consult with your professional advisor and to call the staff at (570) 961-2300 (ext. 1) or e-mail Mark Silverberg to learn more about how distributions from your IRA may fit into your charitable giving plans.

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