A Guide to IRA Charitable Rollovers Pension Protection Act of 2006 With Case Studies James E....

A Guide to IRA Charitable Rollovers

Pension Protection Act of 2006

With Case Studies

James E. Connell FAHP, CSAConnell & Associates

Charitable Estate and Gift Planning Specialists



• Signed by Bush on August 17, 2006 Allows for IRA rollovers to charity

Both regular IRA accounts and Roth IRA accounts are eligible

Charity must be eligible Individual must be 70 ½ or older on the date of

contribution Qualified Charitable Distribution will qualify for the

Required Minimum Distribution requirements of IRA $100,000 limit

$200,000 from couple with separate accounts 2006 and 2007 transfers only Transfers from other pensions and profit sharing plans,

i.e. Keogh, 401k, 403b, etc., are not allowed Possible to rollover above accounts to IRA if plan and time

permit




• Eligible charities501(c)3 public charities509(a)1 and section 170(b)(1)(A)

Field of interest funds Restrictions on use of gifts permitted (i.e.

scholarship funds or building funds)Not Permitted

509(a)(3) supporting organizations• Especially effects hospital foundations

Donor advised funds Private foundations




• Permitted transfers/gifts

Qualified Charitable Distribution (QCD)Outright gifts onlyNo charitable gift annuitiesNo charitable remainder unitrustsNo charitable remainder annuity trustsNo pooled life income fundsNo “quid pro quo” gifts

No personal benefits No special events No athletic tickets




Suggested procedures Notify charity of potential gift Instruct custodian/trustee of IRA on the

proper form and if no form send a complete letter of instructions with payment/gift to the charity as a “third party payment”

Transfer will be mostly cash but in-kind transfers (i.e. securities) are permitted

Keep records of transfer and substantiation from charity

If appropriate, elect out of withholding




Donor Profile – Convenience Donor Most delay taking distributions until the last

quarter of the year in order to grow the remaining funds tax free

If actively making charitable gifts may consider the benefits of taking them from their IRA account(s)• No inclusion in income

• No income tax deduction

• Qualifies for Minimum Required Distribution (RMD)




Donor Profile – Non-Itemizers May be donors with modest IRA account balances,

but sufficient retirement income from personal investments and tax-exempt accounts

Taking MRD may not significantly increase their lifestyle

Do not have significant tax deductions• State and local income taxes• Interest expenses• Medical expenses• Charitable deductions

So the standard deduction applies (2007), over 65• Married/Joint - $11,750 one / $12,800 two• Single - $6,650• Head of household - $9,150




Donor Profile – Generous or Major Donors Most have large IRA accounts May be giving at or above the 50% of AGI limit May be subject to the 3% reduction rule if AGI

exceeds $156,400 (2007) May wish to make a large gift with immediate impact

for a special project in 2007 Carry forward may or may not be a concern because

of age, health or wealth May have filled up their 30% limit with a carry

forward and have no 50% assets to contribute




Donor Profile – Social Security Donor Social security is subject to two taxes when

income reaches certain levels A tax on 50% of SS income at the first level A tax on 85% of SS income at the second

level Donors with income in excess of the second

level may consider reducing their taxable income by making gifts from their IRA accounts thus reducing their taxable income limit




Case example $500,000 IRA account, with a $30,000

Required Minimum DistributionA. $30,000 to charity

B. $10,000 to charity, $20,000 to owner

C. $100,000 to charity:$30K to charity #1$30K to charity #2$30K to charity #3$10K to charity #4

D. $100,000 to charity and $50,000 to owner




Case Example Carol in Florida, widow, husband was former DuPont

employee, died under Hospice care, lives in a total care retirement facility, does not spend the income generated by her IRA retirement assets Age 81, with $113,000 in IRA totally invested in

Vanguard Windsor Fund Received her $5,500 RMD in January and reinvested

RMD into Vanguard Tax-Exempt Fund, has significant tax-free retirement income

Objective: Give total IRA account to Hospice Plan: Give $90,000 in November 2006

• Give balance of account in January 2007




IRA account with deductible and non-deductible contributions

IRA account value of $100,000 with $20,000 non-deductible contributions and $80,000 of deductible contributions and earnings, no other IRA, normally withdrawals follow the pro-rata rules $80K is distributed as a QCD Under the provisions of HR4 the QCD is considered

coming from income first up to the total amount that would be includable in gross income

All $80K is exempt from taxation Balance of $20K is not subject to taxation and can be

withdrawn income tax-free What if only $40K was distributed?

• Effects subsequent pro-rata formula for taxation of RMD




Other Concerns Conversions of other retirement accounts to

IRA accounts Custodian or trustee reporting on 1099R Custodian or trustee minimum QCD levels State income tax impact for charitable gifts State income tax impact for QCD Electing out of withholding for MRD Charity substantiation for $250 or over

following the rules of Tax Revenue Section 1.170A-13f, contemporaneous written acknowledgement


A Guide to IRA Charitable Rollovers Pension Protection Act of 2006 With Case Studies James E....

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