by Melanie Norton
The much anticipated American Taxpayer Relief Act of 2012 was passed by both the Senate and House on January 1, 2013.
Among the many changes enacted by the bill, the continuation of the IRA charitable rollover was one watched closely by both charities and donors alike.
Originally enacted in 2006, the IRA charitable rollover (also known as a qualified charitable distribution) has allowed IRA owners who are 70 ½ and older to rollover up to $100,000 directly to their charities of choice from their IRAs on an annual basis.
The recent legislation affords this opportunity for 2012 and 2013 as well, although the window of opportunity for 2012 is closing quickly (rollovers made during January 2013 may be counted as 2012 qualified charitable distributions).
There are two other scenarios allowed for 2012:
- Those who qualify and took a required minimum distribution in December 2012 may elect to make a gift of these funds in January 2013 and consider the rollover as having occurred in December 2012.
- Those who qualify and made a direct rollover of funds from their IRA custodian to qualified charities in hopes the legislation would be enacted and retroactive for all of 2012 and prior to the December window (these direct rollovers are qualified as retroactive back to Jan. 1, 2012).
The IRA charitable rollover is in effect for all of this year, allowing donors up to another $100,000 in 2013 (most safely made Feb. 1 or after if you read the deliberation over wording of the Act).
Why is this information especially important to donors and charities?
IRA assets are generally considered great assets to use for a donor’s charitable interests when comparing them to “other” assets.
Almost all IRAs are funded with pre-tax dollars. Payouts from qualified plans to non-charitable beneficiaries usually produce ordinary income that is subject to taxation. And, if estate and/or state inheritance taxes come into play, IRA assets could be subject to considerable taxation, eating away at the majority of the gift.
Qualified charities are exempt from paying income and estate taxes! Therefore, the full value of the IRA rollover is available to make a difference for the donor’s charity or charities of choice. A donor may then elect to consider other assets for family and other heirs.
As with any legislation or tax issue, you should always market information of this type with the caveat that it is not provided as legal advice (see our disclaimer below)!*
Always encourage your donors to seek their own professional counsel (legal, financial, tax and planning advisors) to assess the applicability of any charitable deduction as it may relate to their personal financial situation.
The IRA charitable rollover is an excellent way to unlock the substantial opportunity that exists – even after market changes – in the estates of millions of individuals.
* The content in this blog is provided for informational purposes only and should not be construed as legal or financial advice. Any individual making or considering a charitable gift should always seek their own legal, financial, tax or planning counsel as to the applicability of any charitable deduction or tax law as it relates to their personal financial situation. Those who advise charitable donors should encourage the same.