On Aug. 17, President Bush signed into law the Pension Protection Act of 2006. This law includes a long-awaited provision that will allow taxpayers to make direct charitable contributions from their individual retirement accounts.
Valerie RumboughThis allows an exclusion from gross income what would otherwise be a taxable IRA distribution of up to $100,000 per year from traditional IRAs and Roth IRAs. Contributions can be made during 2006 and 2007 by individuals who are at least age 70-1/2 on the day the distribution is made to the charity.
Churches and other non-profits can benefit greatly from this, and may want to encourage their members and/or donors to take advantage of this opportunity to benefit the cause of Christ.
There are some limitations to the law that individuals who are considering this type of gift to their church or other organization need to be aware of. For example, contributions can only be made from IRAs or Roth IRAs.
Individuals should also be aware of the timing of their contribution, since the law only allows the distribution to be made in 2006 or 2007, and they have to be at least age 70-1/2 on the day the distribution is made.
Since the amount of the contribution can be up to $100,000 per year per taxpayer, an individual can contribute up to $200,000 during the two years the law is in effect. A married couple could contribute up to $200,000 per year, or $400,000 total, provided each spouse owns at least one qualified IRA and they each meet the other requirements as previously stated.
In addition, the contribution made can be applied toward an individual’s minimum required distribution. An important point to note when making the contribution is that it has to be transferred directly from the plan administrator to the charity. Individuals need to be sure that their plan administrator informs the charity who the gift is coming from so that the charity can provide the proper acknowledgment of the gift.
Certain charitable contributions do not qualify, such as gifts to donor-advised funds and supporting organizations. However, institutions handling these types of accounts many times have other ways to receive contributions that are allowed. In addition, contributions must be outright gifts. Deferred gifts using instruments such as gift annuities and charitable trusts are not allowed.
For the last 10 years, charities across the country have been lobbying Congress to pass legislation that would enable owners of qualified retirement plans to make unlimited contributions from these plans to their favorite charity. Although the present law is not all that charities had hoped for, it is a big first-step toward what could be broader and more permanent legislation.