Tap into your IRA for Charitable Gifts

If you are 70 1/2 or older, recent legislation now allows you to make cash gifts totaling up to $100,000 a year from a traditional or Roth IRA to qualified charities without incurring income tax on the withdrawal.  A couple with separate IRA's could each give up to that amount.  This is good news for people who want to make a charitable gift during their lifetime from their retirement assets, but have been discouraged from doing so because of the tax penalty.  The provision is in effect only until December 31, 2007.

Individuals who are required to take unneeded IRA withdrawals, and others who have experienced limitation on tax benefits in the past will find the new law of particular interest.  Assets held in IRA's are not only subject to income tax when they are withdrawn in during one's lifetime or by survivors, but they may also be subject to estate tax if left to loved ones other than a spouse.  For that reason, IRA's may be a good choice for some when deciding how to fund charitable gifts.

There are a number of different scenarios, below is an example of two common ones;

Example #1
Louis and Elaine ages 74 and 71, are retired with income from a number of sources, including amounts they must withdraw from their IRA's each year.  The IRA withdrawal amounts are fully reportable as part of their adjusted gross income, potentially causing a number of adverse tax consequences, even when they make charitable gifts from these funds.  This year they have been advised to contact their IRA administrator and make charitable gifts directly from their IRA.  While these gifts do not technically result in additional tax deduction, they are nevertheless tax free.  These charitable distributions also do not count towards limits on deductions and other provisions that might have reduced their tax savings in the past.

Example #2
George, age 72 lives well on his pension, savings and social security.  He is required to take minimum withdrawals from his IRA and is taxed on those funds.  This distribution also causes more of his Social Security income to be taxed.  However, by directing part of his mandatory IRA withdrawal to charity he avoids reporting that amount as income and does not pay taxes on those funds.  He also prevents additional tax on his Social Security benefits.

As you can see, there are a variety of advantages to this type of gift.  To enjoy the full benefit of this unique giving opportunity you must complete the transfer by the end of 2007.  Keep in mind everyone's circumstances are different.  The Catholic Diocese of Pueblo Foundation would be happy to work with you to understand if this may be the right giving tool for you.  You may reach us at 1-800-354-2729 ext. 131 or 719-544-9861 ext. 131.