Riding the IRA Rollercoaster

By: Barlow Mann

Once again, the fate of the charitable IRA rollover provision is up in the air.

Will Congress act this year?

The charitable IRA rollover provision, originally enacted in 2006, has resulted in billions of dollars in charitable transfers since its inception. However, charitable IRA giving has been unpredictable as Congress has allowed the enabling legislation to expire and then be reinstated on several occasions.

Most recently, the provision expired at the end of 2013 but has been widely expected to be retroactively extended yet again. While many believe this will happen before the end of 2014, time is running out and there is widespread confusion among nonprof- it organizations over what to tell potential donors who are faced with taking required minimum distributions in December.

What to do in face of the provision’s uncertain future.

Screen Shot 2014-12-01 at 10.08.13 AMRegardless of the status of the extension, Sharpe Group consultants believe those persons who qualify for and wish to make charitable gifts via IRA transfers should consider completing the transfers up to the lesser of $100,000 or their required minimum distribution amount. That is because if the law is retroactively reinstated, such gifts will qualify for special tax treatment. For instance, the most recent extension covering gifts in 2012 was actually not passed until January of 2013 even though it was retroactive to January 1, 2012. If the provision is not reinstated, the transfer will be taxable. The charitable gift, however, will be tax deductible, although various deduction limits may apply.

While donors should always check with their advisors, in most cases the net tax result will be similar whether or not the charitable IRA provision is retroactively extended. For donors who have already taken their mandatory withdrawal from a retirement plan, gifts of cash or appreciated assets such as individually

owned securities may reduce or eliminate overall tax liabilities on the withdrawals.

The best prospects for IRA gifts will be the affluent “senior elite,” many of whom are still working or are receiving generous pensions from defined benefit plans and are required to make IRA withdrawals and pay taxes on funds they do not need. Redirecting those amounts to their favorite charities may provide a welcome alternative to paying unnecessary taxes.

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