IRA Charitable Rollover for 2011

(direct payment from your IRA to charitable organizations tax free for remainder of 2011)

            On December 16, 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the “Act”) was signed into law by the President.   Part of the tax benefits provided in the Act was the extension of the so-called “IRA Charitable Rollover” for 2010 and the remainder of 2011.  A prior version of the IRA Charitable Rollover was originally passed in 2006, but expired at end of 2009.  The reinstated IRA Charitable Rollover technique allows individuals age 70½ and older to make direct transfers from their IRA totaling up to $100,000 per year to a 501(c)(3) charittable organization of their choice.   This is important because:

1.   The IRA owner does not have to include the amount of such IRA Charitable Transfer in his or her gross income for federal income tax purposes;

2.   The amount of any such IRA Charitable Rollover transfer will is fully applied toward the IRA owner’s required minimum distribution (RMD) requirement for that particular calendar year, which increases the IRA owner’s income tax liability; and

3.    The amount of any such IRA Charitable Rollover transfer is not applied toward the individual’s annual limitation for claiming an itemized income tax deduction for his or her charitable gift (general rule is that charitable income tax deduction is limited to 50% or 30% of adjusted gross income (AGI) depending on the type of charitable gift, with a five year carryover).

Who is qualified to make an IRA Charitable Rollover transfer?

            Any IRA owner who is 70 ½ or older at the time of the IRA Charitable Rollover transfer

How much can be transferred as part of an IRA Charitable Rollover Transfer?

            An IRA owner can transfer up to $100,000 as part of an IRA Charitable Rollover for 2011.  If the individual is married and his or her spouse has an IRA (and is 70 ½ or older) then he or she can also make up to $100,000 transfer.  So for married couples up to $200,000 could be transferred as part of an IRA Charitable Rollover for 2011.

From what type of retirement accounts/vehicles accounts can an IRA Charitable Rollover Transfer be made?

            An IRA Charitable Rollover transfer can only be made from an IRA directly to a 501(c)(3) charitable organization of your choice (not a private foundation or donor advised fund).  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 custodian to transfer the funds from the IRA directly to the charity.

What is the profile of the ideal class of persons/donors that would most benefit from making an IRA Charitable Rollover Transfer?

            1.         Individuals who are required to take required minimum distributions (RMDs) but do not need additional income can satisfy up to $100,000 of the RMD requirement with an IRA Charitable Rollover transfer to charity.  Many individuals have accumulated large IRA account balances and do not need or want to take their RMDs out of their IRA each year, nor do they want to pay the federal income liability attributable to the unneeded RMD.  These individuals could allocate up to $100,000 ($200,000 for married couple with respective IRAs) to charitable organization(s), thereby eliminating or reducing their RMD by $100,000.

            2.         Individuals who usually give up to their maximum annual charitable gifts – based on the respective adjusted gross income (AGI) limitations — the ceiling on the allowable charitable deduction for any year — can now give up to $100,000 more from their IRA accounts, which is not subject to this limitation nor included in their taxable income.  For example, if an individual’s AGI is $80,000 and she already makes $40,000 of annual cash gifts to her various charities of choice, then she could  

            3.         Individuals who do not itemize and who make a charitable gift in an amount less than the standard deduction ($11,600 for married couples, $5,800 for single filers) will benefit from a IRA Charitable Rollover distribution to charity.

            Remember that, unless Congress passes additional legislation this year, the IRA Charitable Rollover transfer technique will expire on December 31, 2011.  Therefore, this effective method of giving is only available for a limited time.  If you feel that you would like to utilize a Charitable IRA Rollover transfer as part of your 2011 gifting strategy, then please contact your the law offices at Gornto & Gornto, P.A. (386) 257-1899.