IRA Charitable Rollovers

Posted on Wednesday, April 20, 2016

Nonprofit organizations have something to be happy about.  The IRA charitable rollover, which was first enacted in 2006 as part of the Pension Protection Act and has since expired and been reinstated multiple times, has been made permanent.  As a result of the IRA charitable rollover, millions of dollars of new contributions have been given to nonprofits. 

Here’s how the rollover works.

·        Once you reach age 70 ½, you can make up to $100,000 a year in gifts to charity directly from your IRA.  There is no requirement that the entire amount be made in one transfer or that the entire amount go to a single public charity.

·        Contributions can only be made from IRAs.  Contributions from 403(b) plans, 401(k) plans, pension plans, active Simplified Employee Plans (SEPs) or Savings Incentive Match Plans for Employees (SIMPLE) and other retirement plans do not qualify for the IRA charitable rollover.

·        These gifts count towards the required minimum distributions that must be taken annually from the traditional IRA but are not included in your adjusted gross income. 

·        Since the gifts are not included in income, they cannot also be claimed as an itemized charitable deduction. 

·        The contribution must be made directly to a public charity eligible to receive contributions.  Contributions to donor-advised funds, supporting organizations or private foundations do not qualify for the IRA charitable rollover.

·        The charitable organization must provide a written acknowledgement showing the amount of the contribution and that no goods or services were provided in return (similar to any other charitable contribution).

Benefits of an IRA chartable rollover.

·        Annual IRA distributions from traditional IRAs are included in AGI and subject to taxes.  The IRA charitable rollover allows you to make donations directly to a charitable organization without including the distribution in income and thus, no tax is paid on the distribution.

·        Taxpayers who are not eligible to itemize can benefit from the IRA charitable rollover since charitable contributions are only deductible to those who itemize.

·        For those taxpayers that do itemize, charitable contributions are limited to 50% of adjusted gross income (AGI); however, the excess can be carried forward for 5 years.  This is an opportunity to make a contribution that is not limited by AGI.

·        For taxpayers with lower income, making a qualified contribution can lessen the amount of social security benefits that must be included in income.

·        Your gifts benefit the community.  All kinds of community public charities benefit from this kind of charitable giving.

UPDATE – Legislation introduced in the Senate on April 6, 2016 would expand IRA charitable rollovers to include contributions to donor-advised funds.  This has only been introduced and not passed as of yet.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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