New Law Provides Window for Gifts to Bowdoin from IRA Assets
Story posted September 10, 2006
The Pension Protection Act of 2006, signed by President George W. Bush on August 17, 2006, includes an IRA rollover provision that permits new tax-free distributions from IRAs to charities such as Bowdoin College.
It provides an exclusion from gross income for certain distributions of up to $100,000 per year from an individual retirement account (traditional or Roth), which would otherwise be considered taxable income. If you have saved tax-deferred income in an IRA and must begin taking required minimum distributions from that account at age 70 ½, you will pay income tax on that amount. By making a gift to Bowdoin from your IRA in an amount equal to or more than the required minimum distribution for that year, you can accomplish your charitable goals and reduce your tax liability.
Please note the following parameters of the IRA rollover:
- You must be 70 ½ years of age at the time of the gift.
- You can give up to $100,000 per year in tax year 2007.
- Your gift must fund an outright gift (unfortunately, it cannot fund a planned gift like a charitable trust or gift annuity).
- The gift will count against your required minimum distribution.
- You will not receive a charitable deduction for your gift.
- The window to make these gifts closes on December 31, 2007.
While other planned giving options are available to Bowdoin alumni and friends, the charitable rollover may be particularly appealing if:
You have maxed out your charitable deductions. A qualified charitable distribution operates separately from the percentage rules that limit the tax benefit of individual charitable giving. Therefore, for individuals inclined to give more, the charitable IRA rollover is an ideal option.
You are a non-itemizer. Because qualified charitable distributions from IRAs do not require the donor to claim an income tax charitable deduction, non-itemizers can take the equivalent of a charitable deduction via the IRA rollover and indicate that on the front page of the IRS Form 1040 without itemizing.
You currently reside in a state that does not allow itemized charitable deductions. As a general rule, most states follow the federal income inclusion rules. That means donors in a state where the tax incentive for giving was limited by the old rules could realize an additional benefit. You should verify the impact of the charitable provisions of the new law in your state.
Please note that the IRA rollover applies only to traditional and Roth IRAs. Other forms of retirement plans such as 401(k), 403(b) annuities, defined benefit and contribution plans, profit sharing plans, Keoghs and employer-sponsored SEPs and SIMPLE plans are not eligible. However, owners of ineligible plans may consider rolling amounts into a qualifying IRA to take advantage of the new rules. Please consult with your financial or tax advisor to discuss this option.
In order for the amount transferred from your IRA to Bowdoin to be a "qualified charitable distribution," current rules stipulate that the funds be transferred directly from the plan administrator of your IRA to Bowdoin. You must contact the plan administrator to request the transfer. You should not withdraw the funds and send them yourself to Bowdoin. We encourage you to inform Bowdoin directly of the imminent gift from you. At that time, you can designate how the funds will be used by the College (e.g., financial aid, the new hockey arena, or the Center for the Common Good).
Your tax and financial advisor can provide advice on the applicability of the new law to your particular circumstances. If you think a gift from IRA assets might make sense for you, please contact the Office of Planned Giving for more information and transfer instructions (207-725-3436).
Charitable IRA Rollovers: Frequently Asked Questions
Q. How much can I give and still take advantage of the tax-free benefits of the new law?
A. The maximum amount that can be excluded from an IRA owner's income is limited to $100,000 per taxpayer per year.
Q. My spouse also supports Bowdoin. Can we both take advantage of the charitable rollover option in the same year?
A. Yes. The amount that can be excluded from income is limited to any amount up to $100,000 per taxpayer. As a married couple, you can together donate up to $200,000 per year provided that each of you owns at least one or more IRAs and has reached age 70 ½.
Q. Who can exclude IRA distributions from taxable income?
A. The exclusion applies to individuals who have reached age 70 ½ by the date of this gift. In order to complete a gift in 2007, you must be 69 by July 2, 2006.
Q. Do I have to pay capital gains tax on the amount that I give to Bowdoin from my IRA?
Q. If I give to Bowdoin using funds from my IRA, do I qualify for a tax deduction on that amount?
A. No. The Charitable IRA Rollover allows individuals to avoid paying income taxes that were never paid when the funds were deposited, but you will not receive a charitable deduction.
Q. If I make a gift to Bowdoin from my IRA, how does this affect my required minimum distribution?
A. The amount that is rolled over from your IRA will be deducted from the amount of your required annual minimum distribution.
Q. If I elect to make a qualified charitable distribution to Bowdoin from my IRA, will I be required to itemize my deductions at tax time?
A. No. If you are part of the nearly 60 percent of taxpayers who elect the standard deduction at tax time, this new giving option will not change that for you. However, if your account includes non-deductible contributions, you may be able to take a charitable deduction on that amount. To guarantee the most favorable tax treatment of your donated IRA assets, please consult your tax or inancial advisor.
Q. Can I use funds withdrawn from other qualified tax-deferred retirement accounts such as a 403(b) or 401(k) type plan?
A. No. The provision only provides a benefit for owners of an IRA or Roth IRA. Other forms of retirement plans such as 401(k) and 403(b) annuities, defined benefit and contribution plans, profit sharing plans, Koeghs, and employer-sponsored SEPs and SIMPLE plans are not eligible. However, owners of ineligible plans may consider rolling amounts into a qualifying IRA to take advantage of the new rules. Please consult with your financial or tax advisor to discuss this option.
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