IRA charitable rollovers make for a rewarding donation
By Jerry Zins Jr. Special to the Acorn

Have you been thinking of making a charitable donation from your IRA to a favorite charity, hospital or other institution?

Your generosity can also reward you with a significant tax break if you take advantage of an opportunity window scheduled to close Dec. 31 this year.

If you are age 70½ or older, you can make a qualified charitable distribution from your IRA- up to $100,000- to an eligible institution and exclude the donation from your gross income.

Married couples can each make a qualified charitable distribution. The tax-free benefit is courtesy of the Pension Protection Act (PPA) of 2006, but it is due to expire at year's end unless Congress extends, modifies or broadens the incentive.

According to the National Committee on Planned Giving, Americans contributed more than $50 million to nonprofits through IRA rollovers during the first four months the PPA provision was in effect.

As of this writing a bill has been introduced in both the Senate and the House, as the "Public Good IRA Rollover Act of 2007," that seeks to continue and expand the tax break for IRA charitable rollovers.

Without significant public support, however, many fear the bill may die of inaction in Congress. If that happens, altruistic seniors will lose a meaningful tax benefit and many worthy charities and institutions will be deprived of vital funding.

What you need to know

You are required to begin annual distributions from your IRA once you reach age 70½. The distributions must be included in your adjusted gross income and are taxable.

But distributions up to $100,000 to a qualified charity or institution that meets the distribution rules can be excluded from your gross income. Spouses with their own IRA can make the same charitable distribution without taxation.

Distributions can be made from a traditional or Roth IRA, and must be made directly from the IRA trustee to the charity. In order to qualify for tax-free treatment, you cannot accept or receive any goods or services in return for your charitable distribution. You must obtain a written receipt substantiating your contribution.

The benefits

According to the Council on Foundations, donors who receive an IRA distribution and make a corresponding charitable contribution must count the distribution as income but receive a deduction for the amount transferred to charity. For higher income taxpayers, the percentage limitation on charitable contributions and the reduction of itemized deductions may prevent the charitable distribution from totally offsetting the taxes on the IRA distribution.

The 2007 provision allows a qualified charitable distribution from an IRA to be entirely excluded from an individual's income. Since the rollover gift is excluded from income, neither the percentage limitations nor the itemized deduction reduction rules apply and so donors achieve a tax benefit.

Nate Nusbaum, vice president of development at St. John's Healthcare Foundation in Oxnard, notes that charitable deductions were previously limited to 50 percent of an individual's adjusted gross income and that "some donors wound up paying more in income taxes than if they hadn't made any gift at all."

Nusbaum said that the current opportunity lets seniors make a tax-free gift now, while they are alive and able to witness the benefits of their generosity.

St. John's, for example, uses charitable distributions to help purchase mammography and neonatal equipment, lifesaving vital sign machines and other hospital essentials.

If you wish to investigate a charitable IRA rollover, be sure to discuss your intentions with an experienced financial adviser or accountant for a comprehensive evaluation of your individual circumstances and the tax ramifications.

Jerry Zins Jr. is a certified financial planner and registered principal with Summit Wealth Management Group in Camarillo. Zins is a member of the St. John's Healthcare Foundation board of directors.