The IRA Charitable Rollover provision, which was established under the 2006 Pension Protection Act, provides an annual exclusion from gross income up to $100,000 for qualified charitable distributions from an IRA. Therefore, individuals who have reached 70 ½ years of age can donate up to $100,000 to charitable organizations directly from their IRA, without incurring any income tax on the distribution. Originally enacted as a temporary two-year measure, the provision was extended in two-year increments through December 31, 2013. The IRA Charitable Rollover provision expired on December 31, 2013, but may be reinstated retroactively.
On July 17, 2014, the House of Representatives passed H.R. 4719, The America Gives More Act. The Act is designed to increase charitable giving, and includes both a retroactive and permanent extension of the IRA Charitable Rollover provision. However, the Senate has yet to act on the proposed provision, leaving considerable uncertainty in planning for 2014 IRA distributions.
In order for a distribution to be a "qualified charitable distribution," (1) the distribution must be made from an IRA or Roth IRA;[1] (2) the distribution must be made directly from the IRA to the charitable organization;[2] (3) the recipient charitable organization must be an organization described in IRC §170(b)(1)(A) – public charities such as churches, hospitals, educational organizations and publicly supported organizations;[3] (4) the IRA owner must be age 70 ½;[4] (5) the distribution must be otherwise includable in the owner's gross income if withdrawn;[5] and (6) the distribution must be otherwise fully deductible as a charitable distribution.[6] The IRS has provided additional guidance in Notice 2007-7.
The tax benefits offered by the IRA Charitable Rollover provision have greatly increased the incentive to make charitable contributions using IRA distributions. The Independent Sector reports that in the first two years the charitable rollover option was offered, over $140 million was contributed to public charities from IRAs. For charitably-inclined individuals, utilizing the IRA Charitable Rollover is more beneficial then withdrawing funds from an IRA, paying the income tax on the distribution, and then later contributing funds to charity.
Despite the considerable benefits, the future of the IRA Charitable Rollover is stalled in the Senate, which is not likely to revisit the issue until after the November elections. It is speculated that the Senate will decline to permanently extend the provision, again opting for a two-year retroactive extension (to December 31, 2015). During this period of uncertainty, taxpayers must act carefully. For those who would otherwise utilize the IRA Charitable Rollover, the best course of action is to wait as long as possible to take their 2014 IRA required minimum distribution to see Congress acts in 2014, as the IRA Charitable Rollover provision, should it be enacted retroactively without changes, will only apply to those distributions made directly from an IRA to a charity or charities.
[1] IRC §408(d)(8)(B)
[2] IRC §408(d)(8)(B)(i)
[3] IRC §408(d)(8)(B)(i)
[4] IRC §408(d)(8)(B)(ii)
[5] IRC §408(d)(8)(B)
[6] IRC §408(d)(8)(C)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
