Donor Spotlight

Donor Spotlight

Jo Ellen Diehl Yeary | Generosity rooted in pride, remembrance, dedication to home

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News & Happenings

The Charitable IRA Rollover is Here

This past August, Congress and the President passed a law(H.R. 4) that provides tax incentives to donors age 70 ½ or older who makegifts from their Individuals Retirement Accounts (IRAs) to communityfoundations and other nonprofit organizations.

Under the new law, donors will be able to make a lifetimegifts using funds from their IRAs without any undesirable tax consequences.Prior to this, donors would have to report any amount taken from their IRAs astaxable income, then take a charitable deduction for their gift, but only up to50 percent of one’s adjusted gross income (AGI). This caused some donors to paymore in income taxes than if they did not make a gift at all.

How does the new lawwork?

1. The donor requests his or her IRA plan administrator totransfer funds to the Foundation for Appalachian Ohio.

2. The IRA administrator transfers the funds directly to theFoundation. It is very important that the funds be transferred electronicallydirectly from the IRA to the Foundation. The donor cannot receive the fundsfirst and the make a gift using the proceeds from the distribution.

3. This “qualified charitable distribution” is excluded fromthe donors adjusted gross income (AGI).

4. Donors must make the gifts to public charities. Gifts tocharitable trusts, donor-advised funds and supporting organizations are noteligible.

5. Donors cannot receive a benefit from the gift, or elsethe entire gift is not an eligible charitable rollover.

6. Gifts must be made by December 31, 2007, when the provision expires.

What are the benefitsto the donor?

1. Donors can avoid paying tax on pre-tax dollars in theirIRAs.

2. The 50 percent AGI limitation on charitable gifts of cashdoes not apply to IRA rollover gifts, so a donor could make a larger gift if heor she desired.

3. Qualified charitable distributions from IRAs count towardthe owner’s required minimum distributions, so donors may be able to reducetheir income and the percentage of social security subject to taxation.


Why is this new lawespecially good for Ohioresidents?

Donors who live in states such as Ohio,which so not allow state income tax deductions for charitable gifts, mayrecognize greater benefits in making a gift from their IRA assets. Without thislaw, donors would have to claim the IRA distribution as taxable income on theirstate and federal return – subject to the AGI limits – but wouldn’t receive astate income tax deduction for the gift. Thus, they would pay more in a stateincome tax.


Q & A

Question: Can adonor use his or her required minimum distributions to make a gift?

Answer: Yes, aslong as the required minimum distribution is less than $100,000 per year. Thisis a great opportunity for donors to avoid receiving the required distributionand avoid paying income taxes on it. You can ask your IRA administrator totransfer the distribution directly to the Foundation for 2007.

Question: I wouldlike to give more than $100,000. How can I do that?

Answer: Thelegislation allows donors to make a gift in the 2007 tax year. Plus, a spouseaged 70 ½ or older also can give $100,000 from his or her own IRA over the sameperiod.

NOTE: The informationabove is not a substitute for expert legal, tax or other professional advice. Westrongly encourage donors to work with their counsel to determine the impact ofthis new law on their particular situations.