Important News For Our Donors about Charitable IRA Rollover Rules

You may recall that last year we told you about the benefits of giving, for donors aged 70 ½ or above, under the Pension Protection Act of 2006. The law encouraged financial support of charitable organizations throughout the United States by allowing a lifetime gift using distributions from your individual retirement account (IRA) without undesirable tax effects. Previously, if you wanted to use IRA funds for a charitable contribution, you first had to withdraw money and then contribute it. The amount you withdrew was taxable, and the deduction for the contribution may or may not have offset your tax. Last year a number of our members took advantage of the terms of the law to make generous gifts to the Foundation. Unfortunately, the rollover provisions expired on December 31, 2007.

Now, the charitable IRA rollover has been resurrected as part of the financial bailout bill signed into law on October 3rd (the Emergency Economic Stabilization Act of 2008).  It has been reinstated retroactive to January 1, 2008 and extended through December 31, 2009. So we want to take this opportunity to remind you of the terms of this legislation and to urge you, if appropriate, to consider this giving vehicle.

To make a charitable IRA rollover gift, you must meet the following criteria:

  • You must be least 70½ years old.
  • The gift must be from a traditional or Roth IRA (no 401(k)s, 403(b)s, etc.).
  • The gift must be to a public charity, such as the Kosciuszko Foundation, and not to a supporting organization.
  • The gift must not be to a donor advised fund maintained by the charity.
  • The gift must be outright and not to a gift annuity or charitable remainder trust (i.e. no life income arrangements).
  • The gift, combined with other qualifying IRA charitable rollover gifts made during the year, must not exceed $100,000.

There are many benefits to this type of gift. Ordinarily, an IRA owner must report withdrawals as income and pay tax on them, up to 40% or more in some places once you add federal, state, and local taxes together.  Qualifying charitable IRA rollover gifts are not reportable as income, however, so they never create tax for the donor.  You would have to report a similar gift from any other type of retirement plan as income, and then declare an income tax deduction.  Not only would the gift be more complicated to execute than a charitable IRA rollover, but a variety of factors could prevent the deduction from completely offsetting the income, resulting in a net increase in taxes owed.

A charitable IRA rollover also counts toward your minimum distribution requirement.  For a donor who wants to make an outright gift to the Kosciuszko Foundation, it makes sense to fund the gift with IRA assets you would be required to withdraw anyway and use other assets, such as cash or proceeds from selling securities, to cover personal needs.

Charitable IRA rollover gifts are very easy to make. All you need do is ask your IRA administrator to write a check from your IRA account to The Kosciuszko Foundation in the amount you wish to give. While charitable IRA rollover gifts will be attractive in many circumstances, the greatest tax benefits from a charitable IRA rollover gift will occur in the following circumstances:

  • You do not itemize deductions.
  • You do itemize deductions, but will not be able to use all of them because you expect your total charitable gifts for the year to exceed 50% of your adjusted gross income.
  • An increase in your income will cause a reduction of your personal exemptions and other adjustments that lower taxable income.
  • An increase in your income will make more of your Social Security income subject to income tax.

This legislation does not allow for you to receive a personal benefit from the Foundation in exchange for the gift. Likewise, please remember that a gift from your IRA allows you to avoid paying income tax on the withdrawal, but it does not afford you a charitable tax deduction.

If you are contemplating a gift from your IRA, we encourage you to consult your tax advisor. The Kosciuszko Foundation does not provide legal counsel and the information provided here is for information purposes only. Also, please feel free to contact the Office of Development and we will be pleased to assist you.

Thank you for your continuing support of the Kosciuszko Foundation!