Gifting Through Your IRA: The Pension Protection Act
President Bush signed into law new tax incentives for charitable gifts from donors who are 70½ or older. The Pension Protection Act of 2006 encourages financial support of charitable organizations across the United States.
Under the law, you can make a lifetime gift using funds from your individual retirement account (IRA) without undesirable tax effects. Previously you would have had to report any amount taken from your IRA as taxable income and 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 than if they didn't make a gift at all.
Fortunately, these IRA gifts can now be accomplished simply and without tax complications. Plus, you can make the gift now while you are able to witness the benefits of your generosity.
You may contribute funds this way if:
- You are age 70 1/2 or older.
- The gift is transferred directly by the IRA trustee to the eligible charity.
- The transfer from the IRA to charity occurs on or before Dec. 31, 2007.
- The total gift does not exceed $100,000 for the year.
- You transfer the gift outright to one or more public charities, but not to supporting organizations or donor advised funds.
HOW THE NEW LAW WORKS
John, age 80, has $450,000 in an IRA and has pledged to give $75,000 this year. If John transfers $75,000 from the IRA, he will avoid paying income tax on that amount. He cannot, however, claim a charitable deduction; it is a pure "wash." John has found an easy way to benefit charity without tax complications.
If he desired, John could give an additional $25,000 in the same way before the end of the year. If his spouse has an IRA and is 70½ or older, she also can give up to $100,000 from her IRA in 2007.
For more information on how to take advantage of this opportunity and make a difference for the patients we serve, please contact Jane Woodbury, vice president of Business and Fund Development, at 888-663-3688, ext. 1360 or jwoodbury@vnacarenetwork.org.
Posted: Feb. 1, 2007
The above information is intended for educational purposes only. For legal, tax, or financial advice, please contact your professional advisors.