December 20, 2010

IRA Charitable Rollover Extension Includes an Extra Gift

Law allows eligible gifts made by January 31, 2011 to be treated as a 2010 donation

A popular charitable gift planning tool was among many provisions included in the recent tax bill that passed Congress and was signed into law by President Obama on December 17, 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853) extends the IRA Charitable Rollover until December 31, 2011. In addition to extending these qualified charitable distributions, the new law also allows gifts made by January 31, 2011 to be treated as 2010 donations and to be used to satisfy the taxpayer’s minimum distribution requirement for 2010. The new law is win-win for taxpayers as well as those in need in our communities.

Carol Golden, executive VP and chief development officer at The Rhode Island Foundation, noted that this change may benefit donors who would like to utilize the rollover in both 2010 and 2011.

“Charitable gifts from our donors are helping Rhode Islanders in need every day so the extension of the IRA charitable rollover is extremely good news for philanthropists and for nonprofits working to improve the quality of life in our communities. Since the tax bill was just signed last week and the year is quickly coming to a close, the change allowing donors to make 2010 qualified charitable distributions until January 31, 2011 will provide some additional time to donors and financial planners,” said Golden.

The Pension Protection Act of 2006 (PPA) permitted individuals to roll over up to $100,000 from an individual retirement account (IRA) directly to a qualifying charity without recognizing the assets transferred to the qualifying charity as income. This initial provision expired on December 31, 2007, but it was extended until December 31, 2009 by the Emergency Economic Stabilization Act of 2008. A qualified charitable distribution is money that individuals who are aged 70 ½ or older may direct from their traditional IRA to eligible charitable organizations. The provision has a cap of $100,000 for charitable distributions from individual IRAs each year. Individuals may exclude the amount distributed directly to an eligible charity from their gross income.

Distributions to almost all types of funds typically held by community foundations like The Rhode Island Foundation – such as scholarship, field-of-interest, and designated funds – qualify. A distribution to a donor advised fund does not qualify for this special treatment. Because donors exclude this contribution from their gross income, they cannot take a charitable contribution deduction for this contribution; to do so would result in a double benefit and that is prohibited. Under the law, qualified distributions must be made before January 1, 2012.

Jim Sanzi, development officer at the Foundation, works closely with professional advisors to help them meet the charitable planning goals of their clients and echoed Golden’s comments about the benefits of the charitable rollover extension. “This extension of the IRA charitable rollover provides a great option for those creating a charitable giving plan. We welcome the opportunity to work with professional advisors and donors to help meet their objectives, and as always, it is a good idea to discuss these issues with your financial or tax advisors,” said Sanzi.