President Obama has signed into law the Protecting Americans from Tax Hikes Act of 2015, extending the IRA Charitable Rollover permanently. The extension allows individuals age 70½ and older to donate up to $100,000 from their IRAs to The University of Pennsylvania tax-free. Donors do not receive an income tax charitable deduction. This provision allows donors to transfer money from their IRAs directly to Penn, without having to recognize the transfer as taxable income. Donors should consult their tax advisors about their specific situations.
The IRA Charitable Rollover has been extended permanently.
The following will supply answers to some of the important questions surrounding the IRA Charitable Rollover.
- Who qualifies? Individuals who are at least age 70½ at the time of the contribution.
- How much can I transfer? Up to $100,000 each year.
- From what accounts can I make transfers? Transfers must come from IRAs directly to charity. If you have retirement assets in a 401(k), 403(b), etc., you must first roll those assets into an IRA, and then can make the transfer from the IRA directly to charity.
- Can I use the transfers to fund life-income gifts like charitable remainder trusts or charitable gift annuities? No, these are not eligible.
- Can I make a transfer to my donor advised fund or supporting organization? No, these are not eligible.
- What are the tax implications?
- Federal – You do not recognize the transfer as income, provided it goes directly from the IRA provider to charity; you are not eligible for an income tax charitable deduction.
- State – Each state has different laws, so check with your own advisors. Some states have a state income tax and will include this transfer as income. Within those states, some will allow a charitable deduction and others will not. Other states base their state income tax on the federal income or federal tax paid. Still other states have no income tax at all.
- Can the transfer qualify as my minimum required distribution? Once individuals reach age 70½, they are required to take minimum distributions from their retirement plans each year, according to a federal formula. IRA rollovers to charity count toward your minimum required distribution.
- I’m over age 70½---should I consider an IRA rollover? Yes, especially if:
- You do not itemize deductions but make charitable gifts, OR
- You are subject to the limitation on itemized deductions, OR
- You are required to take a distribution from your IRA that you just don’t need, OR
- Your charitable gifts already equal 50% of your adjusted gross income.
- How do I execute an IRA rollover? The sample letter can be used to send to your IRA plan provider. For additional questions contact the Office of Gift Planning at 215.898.6171.