Bailout bill reinstates IRA rollover donations to charity

Oct. 4, 2008

For donors of a certain age, this week's federal bailout bill reopens some charitable giving options. Taxpayers who are 70½ should pay very close attention.

Taxpayers in that age bracket who have Individual Retirement Accounts are required to make annual distributions from their IRA. Those distributions normally become taxed as income.

But back in 2006 and 2007, the IRA charitable rollover permitted such taxpayers to donate directly to charities from their IRAs and not count the distribution as income.

And now the bailout has reinstated the program, retroactive to last last Jan. 1 and extending through to Dec. 31, 2009.

On Friday, the New York Times wrote that the bailout bills "extends a provision that allows people older than 70½ to use distributions from individual retirement accounts to contribute up to $100,000 to charity, and exclude that amount from their income." 

Some seniors will need the IRA distribution to pay living expenses. But the seniors who do not, and who would rather not increase their taxable income, now have an incentive to donate the distribution to charities.

Friendship Trays donors who would like to explore their options about using the provisions of the charitable rollover should consult their financial adviser and let us know at Friendship Trays about your intentions. Please call Lucy Bush Carter at 704-333-9229 or e-mail her. That's because to qualify under the rollover program, the donation must be made directly from the IRA account to a charity like Friendship Trays.

The total combined charitable IRA rollover contributions remain capped at $100,000 in any one year.

As with the earlier program, distributions must be traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.

In announcing the bailout bill's provision to her members, Association of Fundraising Professionals CEO Paulette Maehara said her group would lobby in the future to lower the age of donors, extend the $100,000 cap, and to make the rollover program a permanent part of U.S. tax policy.

In a 68,000-word bailout bill, the words that relate to the IRA rollover are few. Section 206 of the bill reads, in its entirety:

"SEC. 205. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR CHARITABLE PURPOSES.

"(a) In General- Subparagraph (F) of section 408(d)(8) (relating to termination) is amended by striking ‘December 31, 2007’ and inserting ‘December 31, 2009’.

"(b) Effective Date - The amendment made by this section shall apply to distributions made in taxable years beginning after December 31, 2007."

For the legislative history of this bill, H.R. 1424, and for summaries, sponsors and so forth, click here.

For the full text of the bill as it left the Senate and won approval in the House, click here.

For information from the Association of Fundraising Professionals, click here.

For the New York Times story headlined, "Bailout brings with it diverse perks," click here. If that URL is unavailable, the text is here.