The charitable IRA rollover, or qualified charitable distribution (QCD), is a special provision allowing donors ages 70 ½ and up to exclude from taxable income — and count toward their required minimum distribution — certain transfers of Individual Retirement Account (IRA) assets that are made directly to public charities, including the Fine Arts Society of Indianapolis, Inc.
A charitable IRA rollover makes it easier to use IRA assets, during lifetime, to make charitable gifts. Under current law, withdrawals from traditional IRAs and certain Roth IRAs are taxed as income, even if they are immediately directed to a charity. The donor receives a tax deduction for his or her donation, but various other federal, and sometimes state, tax rules can prevent the deduction from fully offsetting this taxable income. As a result, many donors have chosen not to use IRA assets for lifetime gifts. The charitable IRA rollover eliminates this problem for a limited time.
A gift that qualifies, technically termed a “qualified charitable distribution,” must be:
– Made by a donor age 70 1/2 or older
– Transferred from a traditional or Roth IRA directly to a permissible public charity, such as the Fine Arts Society
– Completed in calendar year 2013 for the 2013 tax year
If you made a retroactive 2012 charitable rollover gift in January 2013 that counted on your 2012 taxes, you can still make another rollover gift during calendar year 2013. As long as each gift qualifies for the tax year in which you are counting it, you can have charitable IRA rollover gifts for both 2012 and 2013.
Your 2013 gift can be made at any time during calendar year 2013. An individual taxpayer’s total charitable IRA rollover gifts cannot exceed $100,000 per tax year. If you have not already taken your required minimum distribution in a given year, a qualifying rollover gift can count toward satisfying this requirement. Also, the gift would be excluded from income, so providing a deduction in addition to that exclusion would create an inappropriate double tax benefit.
Roth IRAs are generally not included but there is an exception. Withdrawals from a Roth IRA may be tax-free only if the account has been open for longer than five years or if certain other conditions apply. Otherwise, withdrawals are taxed as if they came from a traditional IRA.
Retirement plans such as 401(k) and 403(b) accounts do not qualify however, it may be possible to make a tax-free transfer from such other accounts to an IRA, from which a charitable rollover can then be made.
Gifts must be made to qualified charities. Excluded are:
– Donor advised funds
– Supporting organizations
– Private foundations
Those donors who can benefit from using the charitable IRA rollover to make a gift include:
– persons with significant assets in an IRA
– persons making gifts that are large, relative to their income. (Because a charitable rollover is not included in taxable income, it does not count against the usual percentage limitations on using charitable deductions).
– persons having so few deductions that they choose not to itemize
A rollover gift cannot be used to fund a charitable remainder trust or charitable gift annuity because the donor can receive no benefits in return for the gift. This includes life income plans. The only permissible benefits from a charitable IRA rollover gift are those that would not reduce the tax deduction for which the donor would have otherwise qualified.
While this is a great option, other types of gifts may provide donors with more tax benefits. As with any gift planning question, donors should consult their tax professionals for specific advice.
And you can still make a gift with an IRA beneficiary designation. Whether or not you choose to make a charitable IRA rollover gift, you can still designate the Fine Arts Society as a beneficiary to receive IRA assets after your lifetime. The lifetime charitable IRA rollover is simply another option for donors who would like to see their philanthropy at work now.