IRA Charitable Rollover
On Friday afternoon, the president signed into law a $700 billion rescue plan (“bailout”) for the financial services industry. In order to obtain enough votes to pass this legislation, many seemingly unrelated provisions were added at the last minute. Among these extras was an extension to the IRA tax-free charitable rollover that had originally become law in the fall of 2006 and then was allowed to expire on December 31, 2007.
IU alumni and friends are now able to make tax-free rollover gifts from their IRA accounts to the IU Foundation to support their favorite IU campuses, schools and programs subject to the following rules (which are identical to the rules that were in effect in 2006 and 2007):
1. The donor must be at least 70 ½ years of age. (This is the age when the IRS forces you to begin taking minimum required distributions from your IRA account).
2. There is a limit of $100,000 per person per calendar year (this is cumulative for all of that donor’s IRA rollovers to charitable organizations. It is not $100,000 to each charity). The new extension applies for 2008 and for 2009. It is now set to expire on December 31, 2009.
3. The rollover can be made only from an IRA account. Not from a 401k. Not from a 403b. It could theoretically be made from a Roth IRA but because of the favorable tax treatment for Roth IRAs, it is highly unlikely that a donor and her advisors would choose to use that account. Also, it may be possible for a donor to accomplish the charitable rollover from a 401k or 403b by using a two-step process. They could roll up to $100,000 from the 401k to a new IRA account and then make the charitable rollover from the IRA.
4. The rollover may only be used for outright gifts. It cannot be used to make a gift to a life income gift such as a charitable gift annuity or charitable remainder trust. It also cannot be made to a donor’s donor advised fund or private foundation.
With the turmoil and uncertainty in the markets, it is important to be cognizant of the mindset that many donors and prospects are in at the moment. The tax-free rollover (like any other tax benefit) is not a reason to give in and of itself. However, it can be a valuable option for those alumni and friends who want to support IU’s mission and are looking for the best way to accomplish their philanthropic goals while addressing their tax and financial planning needs as well. Even though the markets are down, donors age 70 ½ will still be forced to take minimum withdrawals this year and next. Now they can again choose to use those withdrawals to instead fund their gifts via a tax-free rollover.
Please do not hesitate to contact any of us in Gift Planning if you have questions. Just let us know how we can be of assistance to you.
Director of Development
Indiana University School of Dentistry