How_To_Make_A_Sizable_Charitable_Donation_From_Your_IRA_Tax_Free

Document Sample
How_To_Make_A_Sizable_Charitable_Donation_From_Your_IRA_Tax_Free Powered By Docstoc
					Title:
How To Make A Sizable Charitable Donation From Your IRA—Tax Free

Word Count:
903

Summary:
If you are over 70 ½ years old, want to make a gift for a special
charitable project, but your only liquid asset is your IRA, I have good
news for you.

On August 17, 2006 the Pension Protection Act of 2006 (PPA 2006) was
signed into law. This nearly 1,000 page piece of legislation marked the
most sweeping changes to the pension arena in 30 years.

Let me give you two common examples that contain problems faced by
seniors solved by PPA 2006…

Roger and Claire are retire...


Keywords:
charitable donation, donation, charity, planned giving, IRA, Pension
Protection Act, PPA 2006, RMD


Article Body:
If you are over 70 ½ years old, want to make a gift for a special
charitable project, but your only liquid asset is your IRA, I have good
news for you.

On August 17, 2006 the Pension Protection Act of 2006 (PPA 2006) was
signed into law. This nearly 1,000 page piece of legislation marked the
most sweeping changes to the pension arena in 30 years.

Let me give you two common examples that contain problems faced by
seniors solved by PPA 2006…

Roger and Claire are retired. Roger spent his working career in the
aerospace industry. He was more than well compensated and over the years
accumulated a very large 401(k) plan. The plan grew nearly 500% during
one 5 year bull market. When he retired, he rolled his 401(k) into an
IRA. Other than their home, the IRA is far and away their biggest asset.

For years, Roger and Claire have been supporters of the Humane Society.
Their local chapter is building an entire new wing on to their kennels.
Roger and Claire would love to make a significant donation—somewhere in
the neighborhood of $50,000 to $100,000.

Bill and Diane both worked during their entire careers. Mary taught 6th
grade for 40 years. Bill was a career military officer. After his
retirement, he spent another 20 years working in the private sector. Bill
and Diane have more retirement plans than Carter has pills. Like Roger,
Bill has a large IRA.
When Bill turned 70 ½, he was required to start taking the minimum
required distributions each year from his IRA. But Bill and Diane don’t
need the income; their other retirement income sources are more than
adequate. Nevertheless, Bill must take these RMDs and pay tax on them as
income.

Bill and Diane have been active in their church all their married life,
all 45 years of it. Their church just bought a new organ. It was a
purchase of necessity inasmuch as the old (very old) organ was becoming
hazardous to play. The organist had to be careful or the organ would
start to smoke. So, needless to say, the church did not pay cash for the
organ; the majority of it was financed. Bill and Diane would like to pay
off the organ.

Both Roger and Claire and Bill and Diane are warm-hearted people. Their
devotion to charitable causes and their church is representative of the
many people who support charitable organizations which reach out to help
people.

But, prior to the passage of PPA 2006, their generosity could have been
thwarted by several things…

1. In both cases, their principal liquid asset was an IRA. Neither couple
had other assets from which to make a gift.

2. If the large sums were withdrawn from their IRAs, they would be
subject to ordinary income tax.

3. If given to a charity, rules which limit the amount that could be
deducted as a charitable contribution would have to be followed. This
means that they may still have to pay tax on a portion of their IRA
withdrawals.

But thanks to provisions in PPA 2006, Roger and Claire can make their
gift to the Humane Society and Bill and Diane can pay off their church’s
new organ using money from their IRAs and not pay any tax on the
withdrawals. But they have to follow the rules…

1. First, you must be at least 70 ½.

2. You can give up to $100,000.

3. This only applies to 2006 and 2007.

4. You can’t withdraw the money from your IRA and then give it to your
charitable cause. The transfer must be made directly from the custodian
of the IRA to the charity.

5. These gifts, called IRA charitable rollovers, count towards your
required minimum distribution for the year.

6. IRA charitable rollovers are not permitted for gifts to donor advised
funds and supporting organizations. However, there are some exceptions
that apply to   funds held by community foundations: scholarship, field of
interest, and   designated funds qualify. So the first step is to contact
your intended   cause to see how they are classified and whether or not the
law allows an   IRA charitable rollover gift.

7. The gift must be a pure gift. In other words, there can’t be any
personal benefit strings attached like tickets to an event.

8. You don’t have to report the IRA charitable rollover as income.

9. However, you don’t get a charitable deduction for your gift. Sorry,
you can’t have your cake and eat it too.

This new law is a real winner. In these two examples, the Humane   Society
is able to build new kennels and a church pays off an organ they   thought
they were going to have to finance. The donors were able to make   it
happen despite the fact that the only real asset they had was an   IRA. I
hope this law is extended beyond 2007.

But like anything new, the name of the game is to communicate what is
possible. The law was put into effect in late August 2006, so that didn’t
leave a lot of time for IRA charitable rollovers that year. If you, or
anyone you know, has an IRA and would like to make a gift, make them
aware of this new option. If you are involved in a public charity, help
their planned giving officer get the word out.

I do not dispense tax advice. It is imperative that you consult with your
tax advisor and the charity to make sure it is qualified and that the
gift is made in the proper manner.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:3/24/2012
language:
pages:3
About Filocity brings together all of the the document and project management tools that you need to manage your business. An online pdf editor, convert to pdf and pdf bookmaker makes document management even easier than ever before. Upload forms and marketing pieces, fill out, digitally sign and share. An online bookmaker gives you the power to select documents, graphics and excel spreadsheets and create a pdf book or proposal to share with clients or prospects. The power of Filocity makes document and project management simple and affordable.