A Unique Opportunity
Thanks to the success of tax-deferred investments within qualified retirement plans, many people have found that they have sufficient funds for retirement and that they will probably have funds left for distribution to heirs and charitable causes they wish to support. Recent changes in the distribution laws governing individual retirement accounts (IRAs) have made it easier to give a portion of your IRAs to charitable organizations you wish to help.
Under the Pension Protection Act of 2006, you may be eligible to make a gift while you are living using funds from your IRA without incurring any undesirable tax effects. Prior to the new law, you would have 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, from now through December 31, 2007, these IRA gifts can be accomplished simply and without tax complications. Plus, you can make the gift while you are living and able to witness the benefits of your generosity.
To be eligible for the special tax treatment, you must be at least 70 ½ years old on the day you make the gift. The maximum amount you can give from your IRA is $100,000 for 2006 and $100,000 for 2007. Your spouse also can give $100,000 per year if he or she is 70½ or older and has an IRA.
You make a gift simply by contacting your IRA custodian to make a direct transfer from your account to an eligible organization. (This excludes gifts made to charitable trusts, donor advised funds or supporting organizations.) Be sure to have the custodian send the funds electronically or by check made payable to the charitable organization. If the custodian makes the check payable to you, and you deposit it into your bank account and write a personal check for the charitable gift, you will not be eligible for the special tax breaks.
With the recent changes, you should see a competent tax advisor before you take any action. With good planning, you can make a major charitable gift of your IRA at a very small cost to your family and friends.