Jason P. Livingston, Esq.
Included as part of the recently enacted 2010 Tax Relief Act signed on December 17, 2010, is an extension of the ability to make IRA Charitable Rollover provisions for 2010 and 2011. Beginning with the Pension Protection Act of 2006, individuals were able to make direct contributions from their IRA to a charity without any adverse income tax consequences, so long as certain criteria (outlined below) were satisfied. That law was meant to last for a two-year period but was extended with the Emergency Economic Stabilization Act of 2008. This extension ended in 2009, and no provisions were in place to allow for similar contributions in 2010.
Now the charitable IRA deduction provisions have been reinstated. However, action must be taken quickly in order to use this technique for the 2010 tax year. Since Congress acted in the eleventh hour, a qualified IRA Direct Charitable Rollover for 2010 can be made until January 31, 2011. In essence, a qualified distribution made in January 2011 can be treated as if it were made in the 2010 tax year and the distribution can also qualify for a taxpayer’s Required Minimum Distribution (RMD) for 2010. Time, however, is of the essence if you want to take advantage of this opportunity.
Furthermore, for those who have already received their RMD for this year, you may still have the opportunity to take advantage of the charitable rollover. The law requires that the charitable contribution be made directly from the IRA to the charitable organization and not from a distribution paid out to the individual. If the RMD has already been distributed for the 2010 tax year, a provision in the IRS Code allows for the funds to be paid back to the IRA within 60 days after the date of distribution. Such an allowance is an additional hurdle to making a qualified charitable transfer, but quick action can still leave the door open to capitalize on this opportunity.
Since the new law also extends the rollover opportunity for 2011, the option to donate can be used throughout the course of the next year.
In addition to the time constraints discussed for 2010, the same rules for previous years still apply, which include the following:
FIRST: The new law still applies only to Individual Retirement Accounts (IRAs) and permits the rollover of up to $100,000 directly to a qualifying charity without recognizing the distribution as income. However, no charitable deduction is available. Other retirement plans, like 401(k)s, SEPs, 403bs, etc., are not covered by the new law. The transfer must be made directly from the IRA to the charity.
SECOND: To qualify individuals must be 70½ or older.
THIRD: The charity must be a public charity or a private conduit foundation (one that distributes all its assets in one year). Distributions to donor-advised funds held by a public charity or donations to supporting organizations do not qualify as permissible distributions. Distributions to all funds other than donor-advised funds held by community foundations such as scholarship, field of interest, or designated funds, will qualify.
FOURTH: Since the qualified distribution from an IRA is not included in the donor’s taxable income, as indicated no charitable deduction is available. However, since the IRA would eventually be subject to income and possibly estate taxes, making qualified charitable distributions will result in a complete savings in income and estate tax.
FIFTH: The qualified charitable deduction will satisfy or be considered a part of the Required Minimum Distribution (RMD) for that year.
The new law will allow all taxpayers who do not itemize their deductions to make IRA charitable rollovers in a tax favored manner.
Donors should work with their professional advisors to determine the affect of the new rules on their specific tax situation.
We welcome the opportunity to discuss the new law with you and answer any questions your may have.
For more information call (585) 987-2800 or visit www.woodsoviatt.com.