You may be looking for a way to make a big difference to help further our mission. If you are 70½ or older, an IRA charitable rollover is a way you can help continue our work and benefit this year.

Benefits of an IRA Charitable Rollover

• Avoid taxes on transfers of up to $100,000 from your IRA to the PACF.
  
• Make a gift that is not subject to the deduction limits on charitable gifts.
• Help further the work and mission of our organization.

How an IRA Charitable Rollover Gift Works

• Contact your IRA plan administrator to make a gift from your IRA to the PACF.
• Your IRA funds will be directly transferred to our organization to help continue our important work. Your gift can be used to build a fund, support a fund, or support the Foundation broadly.
• Please note that IRA charitable rollover gifts do not qualify for a charitable deduction.
• Please contact us if you wish for your gift to be used for a specific purpose.
  

Contact Us

If you have any questions about an IRA charitable rollover gift, please contact us. We would be happy to assist you and answer any questions you might have.

Non-Itemizers
First and foremost, because qualified charitable distributions from IRAs will eliminate the need for donors to claim an income tax charitable deduction, non-itemizers will enjoy the equivalent of a charitable deduction. In fact, some donors who were itemizing for the sole purpose of claiming deductions for their charitable gifts may longer need to do so if they fund their gifts from their IRAs.

The new rules may also be attractive to residents of states with no state income tax (such as Florida, Texas, Nevada, and Washington) because relatively fewer taxpayers in those states itemize (because they have no state income tax to deduct against their federal tax).

Donors Whose Charitable Deductions Are Maxed Out
At the opposite end of the financial spectrum may be donors who have maximized their ability to claim income tax deductions due to the 50% of AGI percentage limitation.

tHese donors will find they can give more because QCDs operate independently of the percentage limitation rules and, therefore, don't affect other gifts to which the limitations apply.

Donors Subject to Tax Friction
Under the old rules, donors making gifts from their IRAs would have to take the distribution into their taxable income and then claim an offsetting income tax charitable deduction. However, the result is not always a wash.

For higher income earners, the impact of receiving additional income on the taxability of social security payments, the deductibility of medical expenses, miscellaneous itemized deductions (subject to the two percent of AGI limitation), the phase-out of itemized deductions and child tax credit, and application of the alternative minimum tax can often result in a net income tax cost of making a charitable gift.

Qualified charitable distributions from IRAs can eliminate this friction and need to perform trial income tax calculations to analyze their net income tax effect (caveat, see discussion of state income issues below).

Donors in States that Don't Allow Charitable Deductions
Some states do not allow itemized deductions for state income tax purposes. In addition, some states (which include some of the same states that don't allow itemized deductions) do not tax retirement plan distributions or otherwise cap the amount of retirement plan distributions subject to state income tax. It is beyond the scope of this article to analyze the benefit of QCDs on a state by state basis; however, we can make some general observations.

In states that do not allow itemized deductions, plan owners who made taxable withdrawals from their IRAs and then donated them under the old rules had to pay state income tax for the privilege of making a charitable gift. Because states generally follow federal income inclusion rules, QCDs should be excluded for state income tax purposes under the new law. Accordingly, taxpayers residing in these states will benefit, if their state continues to follow the federal rules. To the extent states exclude all or cap the amount of plan distributions that are taxable, the relative benefit of the new rules may be reduced.

For example, the new rules may be particularly attractive to taxpayers residing in Indiana and Ohio because those states tax retirement distributions and do not allow itemized deductions. At the other end of the spectrum, Illinois taxpayers will see no change at the state income tax level because itemized deductions are not allowed and retirement plan distributions are excluded. Residents of New Jersey and Michigan (which cap the amount of retirement distributions subject to state income tax) may enjoy a partial benefit. Again, this is not an exhaustive list of all states affected. As has always been our mantra here at the PGDC, check state law and run the numbers!

Charities
Last but not least, because the new rules make the equivalent of a charitable deduction available for non-itemizers and otherwise remove much of tax friction associated with making gifts from IRAs, charities should be able to benefit from a new asset pool and new group of donors. However, as with the temporary charitable giving incentives contained within the Katrina Relief Act, the charities that will benefit will be those that clearly communicate the new rules and opportunity to their donors, and are prepared to help them through the process.

Conclusion

Although the Pension Protection Act of 2006 does not include all of the flexibility we had hoped for, it is certainly a good start. And, as Chris Hoyt reminds us, "Although the new law permits distributions to be made from IRAs directly to charities, it does not compel IRA administrators to make such distributions when they receive instructions from the IRA account owner. The charitable sector needs to be supportive of the needs and concerns of IRA administrators in order for the full potential of charitable IRA rollover to actually be realized." We couldn't have said it better!