Retirement Plan Account
The option of making current outright charitable gifts using Retirement Plan Assets is generally not a wise alternative for donors under age 70 ½ since it requires them to take early distributions from their IRA or Retirement Plan; pay taxes due on the withdrawn amount; use the proceeds to fund their gift; and thereby incur penalties for their early withdrawals.
However, while the above scenario is the norm for most donors, federal legislation signed into law in December, 2010 restored an extension of the 2008 IRA Charitable Rollover provision for donors age 70 ½ and above. Specifically, the new law states that any individual who is at least 70 ½ years old and an owner of a traditional or Roth IRA may instruct their IRA trustee to distribute directly to a public charity like Global Ministries, UMCOR, or the Women's Division up to $100,000 as a current outright gift. The distribution is excluded from the donor's taxable income but still counts toward the IRA owner's mandatory annual or minimum required withdrawal amount. Therefore a couple with separate IRAs can each make gifts up to $100,000. So in some cases couples could direct IRA gifts up to $200,000 between now and the end of 2011 if they fully utilize both of their IRA Rollover extensions.
In order for a donor's gift to qualify for this special IRA rollover treatment, all of the following criteria must be met:
- Donors must be age 70½ or older and own a traditional or Roth IRA. Other retirement plans, such as pensions, Simple IRAs, 401(k) plans, 403(b) plans, and others are not eligible.
- Only the IRA trustee can transfer gift amounts to a qualified charitable organization. If IRA owners withdraw funds and then contribute them to charity separately, amounts withdrawn will be included in the donor's gross income and taxed accordingly. Distribution checks must be issued in the name of a qualified charity, not to the account owner, and advance notification must be given to the charity of the forthcoming gift.
- No charitable deductions are allowed, but gift amounts will not be included in the donors' incomes. According to the IRS, these IRA gifts may be used to satisfy charitable pledges.
- IRA gifts per individual may not exceed $100,000 per calendar year and must be completed by December 31, 2011.
- The ceilings on contribution deductions (50% of adjusted gross income {AGI} for cash and 30% of AGI for capital gain assets) do not apply to IRA gifts.
- IRA gifts cannot be made to charitable remainder trusts or to fund other life-income gift arrangements, such as charitable gift annuities. Transfers are also not permitted to donor-advised funds or supporting organizations.