On Aug. 17, 2006, 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 in 2006 and 2007. Previously you would have had to report any amount taken from your IRA as taxable income, 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, now these IRA gifts can be accomplished simply and without tax complications. Plus, you can make the gift now and will be able to witness the benefits of your generosity.
You may contribute funds this way if: - You are age 70½ or older
- The gift is $100,000 or less each year per IRA owner
- You make the gift on or before Dec. 31, 2006 or Dec. 31, 2007
- You transfer funds directly from an IRA, Rollover IRA, or Roth IRA to the charity
- You transfer the gift outright to one or more public charities, but not supporting organizations or donor advised funds.
Transfers made under the Pension Protection Act may not be used to fund charitable remainder trusts, charitable gift annuities and pooled fund gifts.
How The New Law Works
Pat, aged 80, has $450,000 in an IRA and has pledged to give $75,000 this year. If Pat transfers $75,000 from the IRA, she will avoid paying income tax on that amount. She cannot, however, claim a charitable deduction—it is a pure “wash.” Pat has found an easy way to benefit charity without tax complications.
If she desired, Pat could give more than $100,000. The legislation allows a maximum $100,000 gift in both the 2006 and 2007 tax years. So Pat could give $100,000 each year. If her spouse has an IRA and is 70½ or older, he can also give up to $100,000 each year.
How to Make a Gift
Prior to making a gift, contact the recipient organization to ensure that they are an eligible organization. Once you have received this confirmation and any special instructions, contact your IRA custodian to transfer your desired amount. Send this sample letter to your custodian and be sure to send Rensselaer a copy so that we are able to provide a proper receipt to you.
For More Information
It is wise to consult tax professionals if you are contemplating a gift under the new law. Please feel free to contact Arthur T. Tracy at 518-276-2561 or tracya@rpi.edu with any questions.
If you would like to receive more information, e-mail Arthur T. Tracy at tracya@rpi.edu to request your free ebrochure. Then, we'll send you a copy of the brochure via e-mail.
