Congress extends tax break on gifts from IRAs

In 2006, Congress enacted long-awaited legislation which offered people the opportunity to make charitable gifts from their IRAs. The recently passed Emergency Economic Stabilization Act of 2008 extends the provisions of the original legislation for two additional tax years, 2008 and 2009, providing an opportunity for charitably minded individuals to make gifts directly from their IRAs and to exclude the amount of their gifts from gross income.

A gift qualifies if:

* The gift is made on or after the date the IRA owner attains the age of 70 1/2

* The gift is from a traditional IRA or Roth IRA

* The distribution is limited to $100,000 per taxpayer per year

* The distribution is made between January 1, 2008 and December 31, 2009

* The distribution is transferred directly from the IRA to a qualified charity

* The gift is outright; transfers to donor advised funds, support organizations, and charitable remainder trusts and for charitable gift annuities do not qualify.

The donor cannot receive a charitable income tax deduction for the distribution and the distribution does not apply to planned gifts. The distribution may be used to satisfy the plan owners minimum required distribution for the year.

Prior to the new legislation, individuals withdrawing $100,000 from their IRAs and contributing it to charity would have had to include the $100,000 in their income and would have been allowed a federal charitable income-tax deduction of up to $100,000 (subject to limits of deductibility) to offset the inclusion. Ostensibly, for most taxpayers, the net result was zero tax implication — a “wash” for all practical purposes. But for those taxpayers unable to use some or all of the charitable deduction, the new law presents a significant opportunity.

So, who benefits from the Pension Protection Act of 2006 and its extension via the Emergency Economic Stabilization Act of 2008?

* Individuals who are required to take minimum withdrawals but don’t need additional income can satisfy the distribution requirement with a transfer to charity.

* Individuals who usually give up to 50 percent of their adjusted gross income — 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 or taxed as a distribution. This could enable taxpayers to avoid up to $35,000 ($100,000 x 35 percent) in federal income tax on IRA distributions for this and next year.

* Individuals who live in states where a charitable deduction is not available (check with your advisor) for state tax purposes. The new act can result in savings of up to $7,000 in some cases because the direct transfer of $100,000 from your IRA to charity will not show up in adjusted gross income.

* Individuals who do not itemize and who make a charitable gift in an amount less than the standard deduction ($10,300 for married couples, $5,150 for single filers) will benefit from a transfer directly from their IRA to charity.

* Individuals whose major assets reside in their IRAs will find it convenient this year and next to make direct transfers to charity from their IRAs without the hassle of having to report the transfer on their income-tax returns.

This is only a summary of the rollover provisions of recent legislation. To learn more about how this will impact your gift planning with Bates College, or to discuss other Bates charitable giving options with a member of our staff, please call us at 800-762-3145 or e-mail us at

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