New Legislation Allows You to Make a Lifetime Gift From Your IRA
The Pension Protection Act of 2006, which was signed into law by President Bush in August 2006, encourages the financial support of the good work done by charitable organizations. The law allows donors aged 70 ½ or older to transfer funds directly from their individual retirement account (IRA) to a public charity (not including supporting organizations, donor advised funds or charitable trusts) without undesirable tax effects
Previously you would have had to report any amount taken from your IRA as taxable income, then take a charitable deduction for the gift, but only up to 50 percent of your adjusted gross income. In effect, this caused some donors to pay more in income taxes that if they didn't make a gift at all.
By taking advantage of this news and malting a gift now, you will witness the benefits of your generosity and jump-start your legacy without tax complications. But you must act soon. This provision only lasts until December 31, 2007.
You may contribute IRA funds in this way if:
- You are age 70 ½ or older
- Your gift is $100,000 or less each year
- You make the gift on or before December 31, 2007
- You transfer funds directly from and IRA or Rollover IRA
- You make the gift to an eligible public charity
How the New Law Works
Pat, age 80, has $450,000 in an IRA and has pledged to give $75,000 this year. If Pat transfers $75,000 to an eligible organization from the IRA, she will avoid paying income tax on that amount. She cannot, however, claim a charitable deduction - it is a pure "wash." Pat has found an easy way to benefit an eligible organization without tax complications.
If she desired, Pat could give more than $100,000. The legislation allows a maximum $100,000 gift in both the 2006 and 2007 tax years. So Pat could give $100,000 each year. If her spouse is 70 ½ or older and has an IRA, he can also give $100,000 each year.
It is wise to consult tax professionals and your IRA custodian if you are contemplating a gift under the new law. We are also available to answer any questions.
Use your IRA to jump-start your legacy and watch your philanthropy take shape.