Your IRA

Use Your IRA as Never Before

On Aug. 17, 2006, President Bush signed into law new tax incentives for charitable gifts from donors who at least 70½ years old. The Pension Protection Act of 2006 encourages financial support of charitable organizations across the United States.

Under the law, you can make a lifetime gift using funds from your individual retirement account (IRA) without undesirable tax effects. Previously you would have had to report any amount taken from your IRA as taxable income, and then take a charitable deduction for the gift, but at only up to 50 percent of your adjusted gross income. In effect, this caused some donors to pay more in income taxes than if they did not make a gift at all.

Fortunately, now these IRA gifts can be accomplished simply and without tax complications. You can make the gift now, and enjoy and witness the benefits of your generosity.

You may contribute funds this way if:

  • You are at least 70½ years old
  • The gift is $100,000 or less each year
  • You make the gift on or before Dec. 31
  • You transfer funds directly from an IRA or Rollover IRA
  • You transfer the gift outright to one or more public charities, but not to supporting organizations or donor advised funds

How The New Law Works

Peter, aged 80, has $450,000 in an IRA and has pledged to give $75,000 this year. If Peter transfers $75,000 from the IRA, he will avoid paying income tax on that amount. He cannot, however, claim a charitable deduction—it is a pure “wash.” Peter has found an easy way to benefit charity without tax complications. If he desired, Peter could give more than $100,000. The legislation allows a maximum $100,000 gift in both the 2006 and 2007 tax years. So Peter could give $100,000 each year. If his spouse has an IRA and is 70½ years old or older, she can also give up to $100,000 each year.

How to Make a Gift

Prior to making a gift, contact the recipient organization to ensure that they are an eligible organization. Once you have received this confirmation and any special instructions, contact your IRA custodian to transfer your desired amount.

For More Information

It is wise to consult tax professionals if you are contemplating a gift under the new law. Please feel free to call the Development Office at (301) 464-3215 ext. 216 or email development@htrinity.org.