In August the president signed into law the Pension Protection Act of 2006, which includes several provisions designed to promote charitable giving. Most prominent among these is a two-year IRA Charitable Rollover provision allowing persons 70-1/2 years of age and older to exclude up to $100,000 of otherwise taxable distributions from an IRA from their gross income for a taxable year for cash gifts directly to a qualified charity, including United Methodist churches, institutions and agencies. The rollover provision applies to both traditional and Roth IRAs, but not to other retirement plans such as 401(k) or 403(b) plans.

 

To qualify for the rollover treatment, a gift must be made directly from the IRA account to a qualified charity. Many United Methodist churches in Florida have the ability to accept gifts directly from fund managers. If your church does not have that capability, the Foundation is ready to assist you and our church in effecting the transfer.

 

While this bill is not as comprehensive as the legislation originally proposed, it does offer a new opportunity for charitable giving for qualified persons.

 

The new legislation offers an incentive to donors who want to use the money in their IRAs to make charitable gifts.  Let’s look at a couple of examples:

 

Example #1

 

If a donor in the 35% tax bracket withdraws $100,000 from an IRA and keeps it, the donor will pay $35,000 in income tax and keep the remaining $65,000.  If the donor rolls over the same $100,000 directly to charity, he or she will forego $65,000 after-tax dollars, but also have the satisfaction of giving $100,000 to a cause that he or she supports.  

 

Example #2

 

A donor who has no mortgage and has medical deductions that are less than 7.5% of adjusted gross income may not have a sufficient level of deductions to itemize and must instead use the standard deduction. 

 

If this donor withdraws $1,000 from his or her IRA and then gives it to charity, there is $1,000 of increased income with no offsetting charitable deduction, since the standard deduction is taken.  The donor may want to consider making an IRA gift directly to the charity, thus avoiding the additional income tax that would otherwise be payable.

 

To qualify for IRA rollover treatment, the donor must direct the IRA manager to transfer funds directly to charity.  The donor must be at least age 70 ½ and the donee must be a tax-exempt organization to which deductible contributions can be made.  Donor advised funds and supporting organizations are not eligible.  The gift must be outright; rollovers to a planned gift, such as a gift annuity or a charitable remainder trust, do not qualify.  Neither do outright distributions to charity from employer-sponsored retirement plans, such as Simple IRAs, 401(k)s, and 403(b)s.  Also note that IRA rollovers may be includable in a donor’s income for state and local tax purposes and may not earn an offsetting charitable deduction, depending on state and local law.  The provision is effective only through December 31, 2007

 

The Foundation strongly urges you to consult with your professional advisors before making any gift from your IRA.

 

For more information please call, click or write us at 1-866-363-9673, www.fumf.org, or PO Box 3549, Lakeland, FL 33802.