IRA Charitable Rollovers

The PATH Act of 2015, signed into law by the President on December 18th, 2015 renewed and makes permanent the IRA charitable rollover provision that originally began in 2006. Rollovers are free of federal tax and they qualify for the donor’s 2015 “required minimum distribution.”   

Who Could Benefit From an IRA Charitable Rollover?

If charitable deductions are not itemized -

  • IRA rollovers especially benefit the nearly 40% of Americans who do not itemize deductions and therefore do not receive a tax benefit for their charitable contributions.

If charitable gifts already exceed 50% / 30% limits of expected adjusted gross income for 2015 -

  • This allows the donor to skip by these limits and give more.

If Social Security income is taxable -

  • By avoiding the recognition of taxable income, the donor may have less of their Social Security income subject to income tax.

If donor is a resident of Ohio, Indiana, Michigan, New Jersey, Massachusetts or West Virginia -

  • These states provide no income tax break for charitable contributions. 

Future estate tax implications -

  • The combination of estate and income taxes on IRA assets can produce an effective tax rate of up to 80%.  The Charitable IRA Rollover exclusion gives individuals the opportunity to remove up to $100,000 of these assets from their estate with no tax consequences. Spouses can rollover up to $100,000 as well if qualified.

What Are The Rules for Using an IRA Charitable Rollover?

  1. Individuals must be 70½ years old or older.
  2. Rollover cannot exceed $100,000. Amounts more than $100,000 will be added to taxable income.
  3. The rollover for 2015 must be completed before December 31, 2015.
  4. Rollovers can only be made from traditional IRAs. Rollovers from 403(b) plans, 401(k) plans, pension plans, and other retirement plans do not qualify. Funds must come DIRECTLY from the plan administrator to the charity.

Please note that if a donor made direct distributions earlier in 2015 from their IRA to a charity where those funds were put in a donor advised fund, the donor is still required to claim those monies as income and they cannot be characterized as a charitable rollover. 

Two Ways to use your Required Minimum Distribution (RMD) for your Charitable Legacy with American Endowment Foundation (AEF)

While traditional donor advised funds and private foundations are not eligible for the IRA Charitable Rollover, AEF offers other fund options that do qualify. Unlike a donor advised fund, these options require that the charitable beneficiaries and grant distribution patterns be specified up-front. These funds offer a variety of grant-distribution patterns including an endowment feature that enables distributions to support the specified charities ... virtually forever.

Of additional note, this process allows the donor to have their trusted financial advisor to continue to manage the assets.

For example, the donor can use the rollover to establish a:

•         Scholarship Fund:  A donor can establish a scholarship program at a school of their choice through AEF.  The donor can work with the school to determine the criteria the school will use in screening and selecting scholarship applicants. According to a predetermined schedule, AEF makes a specific grant distribution to the school which, in turn, awards scholarship grants to qualifying applicants ... virtually forever.

•         Designated Fund: A donor can create a designated fund at AEF to support a specific charity of their choice. According to a predetermined schedule, AEF makes a specific grant distribution to the charity…virtually forever.

At American Endowment Foundation, we look forward to discussing your circumstances and helping determine which of the funds may be best for your client. Contact us or call at 1-888-660-4508.

Note: The information provided herein is for informational purposes only and should not be interpreted to constitute legal and/or tax advice. Donors should consult their legal and tax advisors regarding their specific situations.


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Tom Tobin

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