In 2006, Congress made a change to the tax law that allows individuals age 70½+ to make charitable gifts directly from a traditional IRA account to charity without incurring federal income tax on the withdrawal. Many people have not heard about this option for making charitable gifts because it would expire every two years and need to be renewed by Congress.
H.R. 2029, the Protecting Americans from Tax Hikes Act of 2015, changed all that, making this provision a permanent, rather than temporary, part of the tax code (to the extent anything is permanent in the tax code). The IRA Charitable Rollover, also known as Qualified Charitable Distribution (QCD), provides you with an excellent opportunity to make gifts during your lifetime from an asset that would be subject to multiple levels of taxation if it remained in your taxable estate.
- You must be at least 70½ years of age when the gift is transferred.
- Transfers must be made directly from a Traditional IRA or Roth IRA account (special exclusions may apply to other types of IRA accounts) by your IRA administrator to Audubon Connecticut in the form of a check. Funds that are withdrawn by you and then contributed do NOT qualify. If you have retirement assets in a 401(k) or 403(b), you must first roll those assets into an IRA, and then make the transfer from the IRA directly to the charity. You cannot do a Qualified Charitable Distribution from a SEP-IRA or SIMPLE IRA.
- Gifts must be outright. Distributions to donor-advised funds or life-income arrangements such as charitable remainder trusts and charitable gift annuities are not allowed.
Benefits of a Qualified Charitable Distribution
- Are not included in your gross income for federal income tax purposes on your IRS Form 1040 (no charitable deduction is available, however).
- Meets your Required Minimum Distribution (RMD) for the year from your IRA.
- Can give above your deductible limit of 50% of adjusted gross income.
Suppose John has $500,000 in an IRA and he also wants to contribute $20,000 to Audubon Connecticut. He can authorize the administrator of his IRA to transfer $20,000 to Audubon Connecticut and $5,000 to himself. The $20,000 distributed to Audubon Connecticut will not be subject to federal tax and will be counted toward his annual RMD.
As you plan your RMDs for this year, if you do not need the money the government is requiring you to take, consider using it for a charitable gift using the IRA Charitable Rollover.
Questions & Answers
H.R. 2029, the Protecting Americans from Tax Hikes Act of 2015 has permanently extended the IRA Charitable Rollover. Originally passed in 2006 as part of the Pension Protection Act, the IRA Charitable Rollover allows individuals age 70½ and older to make direct transfers totaling up to $100,000 per year to 501(c)(3) charities, without having to count the transfers as income for federal income tax purposes.
Who qualifies? Individuals who are age 70½ or older at the time of the contribution (you have to wait until your actual 70½th birthday to make the transfer).
How much can I transfer? Up to $100,000 per year. Total gifts cannot exceed $100,000 per year, per IRA owner or beneficiary (married taxpayers with separate IRAs can give up to $200,000 total per year, but no more than $100,000 may be distributed from each spouse's IRA).
From what accounts can I make transfers? Transfers must come from your IRAs directly to Audubon Connecticut. If you have retirement assets in a 401(k), 403(b) etc., you must first roll those funds into an IRA, and then you can direct the IRA administrator to transfer the funds from the IRA directly to Audubon Connecticut in the form of a check.
To what charities can I make gifts? Gifts must be made directly from your IRA to a public charity (i.e., they cannot be made to a private foundation, a supporting organization, or a donor-advised fund).
Can I use the IRA Charitable Rollover to fund life-income gifts (charitable gift annuities, charitable remainder trusts, or pooled income funds), donor advised funds or supporting organizations? No, these are not eligible.
Can I use the IRA Charitable Rollover to support [insert one of your key priorities here]? Yes, all IRA Rollover gifts can be used to support this important need.
How will Audubon Connecticut count the gift? We will give you full credit for the entire gift amount.
What are the tax implications to me?
- Federal — You do not recognize the transfer to Audubon Connecticut as income, provided it goes directly from the IRA administrator to us. However, you are not entitled to an income tax charitable deduction for your gift.
- State — Each state has different laws, so you will need to consult with your own advisors. Some states have a state income tax and will include this transfer as income. Within those states, some will allow for a state income tax charitable deduction and others will not. Other states base their state income tax on the federal income or federal tax paid. Still, other states have no income tax at all.
Does this transfer qualify as my Required Minimum Distribution? Once you reach age 70½, you are required to take minimum distributions from your retirement plans each year, according to a federal formula. IRA Charitable Rollovers count towards your RMD from the IRA for the year.
Can my spouse also make a gift with their IRA Charitable Rollover, even if we are married and file jointly? Yes, every IRA owner or beneficiary can gift using their IRA Charitable Rollover for up to $100,000 each year.
How do I know if an IRA Charitable Rollover is right for me? You are at least age 70½, and:
- You do not need the additional income necessitated by your Required Minimum Distribution, OR
- Your charitable gifts already equal 50% of your adjusted gross income, so you do not benefit from an income tax charitable deduction for additional gifts, OR
- You do not itemize deductions, OR
- You are subject to income phase-outs on your income tax deductions.
- You want to support Audubon Connecticut’s work in a meaningful way today!
What is the procedure to execute an IRA Charitable Rollover? We offer a sample letter you can send to your plan provider to initiate a rollover. Make sure that you contact us when you direct the rollover so we can look for the check from your IRA administrator.
For more information, please contact us.