Posted April 1st, 2007

IRS Rules Regarding IRA Distributions

For those taxpayers over age 70½ who made use of the IRA giving opportunities provided by the Pension Protection Act of 2006, there are special IRS rules they will need to follow on their tax returns this year.

Taxpayers should receive from their IRA administrator a Form 1099-R, which details the amount of distribution received from an IRA. Distributions would then be reported on the individual’s 1040 return. Generally, taxpayers would leave line 15a blank on this form, and then enter the total IRA distribution on line 15b. An exception to this rule is if the IRA distribution is a qualified charitable distribution (QCD).

In the case of QCD, the taxpayer will want to enter the total distribution on line 15a. If the total amount of the IRA distribution went to charity, “0” should be entered on line 15b. If only a portion of the IRA distribution went to charity and is QCD, enter only the part that is not QCD on line 15b (an exception to this would be non-deductible contributions to IRAs). For more information, see the instructions for IRS Forms 1040 and 1099-R at www.irs.gov.

Note that QCD is defined by the IRS as a distribution made directly from an IRA trustee to a nonprofit organization of traditional or Roth IRA funds. The donor must have been age 70½ or older when the distribution was made, and a donor’s total QCDs for one year cannot exceed $100,000. In the case of a joint return, each spouse may claim QCD of up to $100,000 from his or her IRA.

What does this mean for development professionals?

Encourage tax-free gifts of up to $100,000 in 2007 by providing a tax-time reminder to 2006 PPA donors and other prospects. Consider giving donors timely information about properly reporting qualified charitable distributions on this year’s 2006 return, and enclose materials regarding giving through retirement plans.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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