In 2006, Congress enacted the IRA charitable rollover provisions that allow individuals age 70 ?? or older the opportunity to make significant charitable gifts from their IRAs without recognizing taxable income on the distribution. The original law was set to expire at the end of 2007, but since it was so popular with taxpayers — who doesn’t like to avoid taxes — Congress has extended the law several times. The latest extension was in the American Taxpayer Relief Act of 2012. That law was actually enacted in January 2013, but it’s easy for Congress to get its dates mixed up considering the distraction of all the football bowl games being played around that time.

Congress extended the IRA charitable rollover law to the end of 2013, so you have the rest of this year to make a gift through your IRA to your parish, the Catholic Services Appeal, the Changing Lives Together initiative, the Archdiocese of Detroit Endowment Foundation, Sacred Heart Major Seminary and other archdiocesan institutions and agencies.

From conversations with parish staffs and parishioners over the years the IRA charitable rollover law has been in effect, we in the Department of Development and Stewardship know that many people already have taken advantage of the benefits of this law in making their CSA and Changing Lives Together pledges and other gifts to the Church. Still, you may have questions about the IRA charitable rollover.

 

What is the IRA charitable rollover?

The IRA rollover provision permits individuals age 70 ?? or older to make distributions directly from their IRA to a charity without having to report the distribution as taxable income.

The tax law requires an individual, upon attaining age 70 ??, to take annual required minimum distributions from his or her IRA. Under this IRA charitable rollover law, direct distributions from your IRA to charity are included in the required minimum distribution amount but are not taxed.

 

How long can I take advantage of the IRA charitable rollover?

Under the current law, the benefits of the IRA charitable rollover continue throughout 2013.

 

What are the limitations?

Of course, when Congress gives a benefit, there are generally some limitations:

• This benefit applies only to individuals age 70 ?? or older.

• At this time, only distributions made in 2013 qualify.

• Qualifying distributions to charity are limited to $100,000 for the year.

• Only distributions from traditional or Roth IRAs are tax-free. The new law does not apply to other qualified plans such as 401(k) and other employer-sponsored retirement plans. However, consult with your financial or tax adviser about the possibility of transferring funds from one of these other qualified plans to establish an IRA, with the distribution to charity coming from the newly established IRA.

• Only direct distributions to charity qualify as tax-free. The new law does not apply, for example, to distributions in exchange for a charitable gift annuity or to a charitable remainder trust.

 

How does the new law benefit me?

Under prior law, any distribution from a traditional IRA and from some Roth IRAs was included in the individual’s taxable income. Using the distribution to make a gift to charity offset the tax impact to some extent. However, at the same time, a taxable IRA distribution might increase taxation of Social Security benefits and limit deductions such as medical expense and other itemized deductions. The new law eliminates these unfavorable results of IRA distributions.

The new law also benefits individuals who do not itemize deductions, but instead claim the standard deduction on their tax return. Not including the IRA distribution to charity in taxable income is equivalent to a charitable contribution deduction.

 

Who should I contact to take advantage of the IRA charitable rollover law?

Consult with your IRA custodian about the procedures for making direct gifts to charity under the IRA charitable rollover law. In order to benefit from the IRA charitable rollover law, it is very important that the distribution from your IRA be made payable directly to the charity.

While the topic is fresh on your mind, ask your attorney and financial adviser how to make the Church a beneficiary of your IRA.

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For more information on estate planning and planned charitable giving, contact Tom Scholler, associate director of the Archdiocese of Detroit’s Department of Development and Stewardship, at (313) 883-8771 or [email protected]. This article is for your information on stewardship, estate planning and charitable giving. It is not intended to be legal, financial or tax advice. You should consult with your attorney, financial planner or tax advisor for the planning of the transactions suggested here.