What
You Need To Know About The IRA Rollover
The Emergency Economic Stabilization Act of 2008 (H.R. 1424) includes a two-year extension of the IRA charitable rollover. The provision, originally enacted as part of the Pension Protection Act of 2006 (PPA), permits IRA owners starting at age 701/2 to make tax-free "qualified charitable distributions" of charitable gifts totaling up to $100,000 per year from their IRAs.
Distributions from Simplified Employee Pensions or Simple IRAs do not qualify and would, therefore, be included in gross income. The same is true of distributions made directly to a taxpayer and then contributed to a charitable organization.
Distributions must be made to a tax-exempt organization to which deductible contributions can be made. Distributions to private operating foundations or private foundations that elect to meet the conduit rules in the year of the distribution may be "qualified charitable distributions." However, distributions to donor advised funds held by public charities, "supporting organizations," or private non-operating foundations and split interest trusts will not be considered "qualified charitable distributions." Taxpayers may not use this new provision to fund charitable remainder trusts or charitable gift annuities tax-free.
The legislation offers as much flexibility as traditional charitable giving because the $100,000 annual limit may consist of multiple distributions from one or more IRA accounts donated to several charitable organizations. Since the limitation applies to each individual, as long as a taxpayer and his/her spouse each own at least one IRA, a married couple may be able to take combined distributions up to $200,000.
Be aware that there is no carryover provision for any "qualified charitable distribution" in excess of $100,000 in a tax year. The amount in excess of $100,000 is includible in gross income for the tax year in which the excess distribution was made.
It is very important to understand that the distribution to a charitable organization must be entirely deductible as a charitable contribution deduction under IRC §170 (ignoring any charitable deduction percentage limits). The exclusion is not available for any part of the IRA distribution if the amount is reduced because of a benefit received or lack of sufficient substantiation received by the donor. It is imperative for the taxpayer to obtain written acknowledgement of the contribution.
The amount of "qualified charitable distributions" from a traditional IRA can be used to satisfy the required minimum distribution (RMD) rules under IRC §408(a)(6). This allows a taxpayer, who is required to take a RMD but does not need to take a distribution from their IRA because they have income from other sources, the option of taking a "qualified charitable distribution" without having to incur a tax liability.
Be advised that there is no change to New Jersey's income tax treatment of distributions from IRA's. Distributions from IRA accounts that are "qualified charitable distributions" for Federal income tax purposes are taxed as pension and annuity income for New Jersey.
As always, we recommend that you consult your tax advisor. To learn more about charitable estate planning, and special recognition accorded through The Knight Society, please contact Chris Rollins at (609) 978-3081.
This article was provided by Deborah Mathis, CPA, CHBC, Principal, at Cowan, Gunteski & Co., P.A., a Trustee of the SOCH Foundation, and Chair of the Planned Giving Committee.
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