On December 18, 2015, legislation was signed into law that made the IRA charitable rollover a permanent opportunity for citizens age 70½ and older.
What is the IRA Charitable Rollover?
The IRA charitable rollover allows individuals age 70½ and older to make direct transfers of up to $100,000 per year to qualified charities, like the Community Foundation. Individuals do not have to count the transfers as income for federal income tax purposes and transfers can serve as the required minimum distribution (RMD).
Transfers must come from your IRA directly to the qualified charity. If you have retirement assets in a 401k, 403b or like accounts, you must first roll those funds into an IRA and then direct the IRA administrator/custodian to transfer the funds from the IRA directly to the Community Foundation.
Who Should Consider an IRA Charitable Rollover?
- Individuals age 70 ½ and older who have more money in their IRA than needed for daily living expenses and long-term care.
- Spouses who both have IRA accounts and don’t need the income to support daily living expenses. Each spouse can transfer up to $100,000 from their IRA.
- Generous donors who may give more to charity than they can deduct in a tax year because transfers from an IRA directly to a qualified charity are exempt from federal income taxes.
- Donors who regularly give a portion of their income to charity and do not itemize deductions.
- Income from your required minimum distribution (RMD) will affect the amount of your Social Security income that is taxable.
- You wish to remove up to $100,000 from your taxable estate knowing that the IRS can impose taxes of up to 60 percent on IRA funds not distributed during your lifetime.
Prior to 2006, IRA holders faced a barrier to giving retirement assets to charity during their lifetimes because all withdrawals from traditional IRAs were subject to income tax. The IRA charitable rollover was first enacted by Congress in 2006 but was temporary. Since that time, Congress renewed the extension but it was always temporary until this most recent legislation. Now that the IRA charitable rollover provision is now permanent, IRA holders can choose charity over taxes and witness the impact of their IRA charitable rollover during their lifetimes.
Frequently Asked Questions about the IRA Charitable Rollover
The Community Foundation always recommends discussing your charitable giving plans with your professional advisor or attorney.
To what charities can I make an IRA charitable rollover?
IRA charitable rollover gifts must be made directly to a 501(c)(3) public charity such as the Community Foundation. The Community Foundation is able to accept IRA charitable rollover transfers to start a new or give to an existing fund. Click here to learn about the different types of funds the Community Foundation offers.
Can an IRA charitable rollover benefit a donor advised fund?
No, donor advised funds and supporting organizations are not eligible to receive IRA charitable rollover transfers. Also, IRA charitable rollover transfers cannot be made to charitable gift annuities, charitable remainder trusts and similar planned giving vehicles.
What are the tax implications of an IRA charitable rollover gift?
Because the transfer occurs directly from your IRA to a qualified charity, you don’t have to count the transfer as taxable income for federal tax purposes. Important to note is that an IRA charitable rollover transfer can count as your required minimum distribution (RMD) for the year.
Additionally, gifts to qualified permanent endowment funds with the Community Foundation can take advantage of the Endow Iowa 25% state tax credit. Click here to learn more about the tax credit.
How do I initiate an IRA charitable rollover?
You must contact your IRA administrator/custodian to initiate the transfer to the Community Foundation. Also, we encourage you to notify the Community Foundation that you are making an IRA charitable rollover.