Fall 11 - Year-End Opportunities Abound
Donors were delighted and nonprofits were given an incredible opportunity when Congress extended the Charitable IRA distribution provision through the end of 2011.
The provision allows donors age 70½ and older to make a tax-free gift directly to a Code Section 170(b)(1)(A) charitable organization from their IRA. Note that Section 509(a)(3) supporting organizations, such as school foundations, do not qualify.
The Opportunity
With urgency on your side (the extension expires December 31, 2011), you have a powerful opportunity to engage with donors as they consider their year-end tax moves. Americans have made millions of dollars of new contributions to nonprofits since the provision was first enacted.
Of course, you’ll need to be aware of some critical points as you explore this limited-time fundraising opportunity:
The funds must be directly transferred from IRAs to the charities. Donors should ask their IRA custodians for special forms to make these transfers.
- The provision entitles each individual to make a total of $100,000 in gifts to charities each year. For married individuals filing a joint return, the gift could total $200,000 if both spouses have IRAs.
- IRA rollover gifts cannot be used for planned gifts such as charitable remainder trusts or gift annuities.
- Donors do not qualify for an additional charitable income tax deduction when making gifts of IRA rollovers.
Who Is a Prospect?
The provision is loaded with benefits for older donors. For instance, the payout can satisfy the Required Minimum Distribution (RMD), and while the donor receives no deduction, neither does he or she have to report the payouts as income. That’s important for seniors who may otherwise fear that a donation would swell their reported income, possibly raising Medicare premiums or taxes on Social Security payments.
Of course, individual situations vary, but IRA gifting can make sense for older donors who:
- Hold assets in their IRAs that they do not need.
- Want to make a substantial, one-time gift.
- Are subject to the 2 percent rule that reduces itemized deductions.
- Do not itemize.
- Plan to leave part or all of their IRA to your organization at death.
Making Last-Minute Appeals
Strategic use of timely, last-minute communications may be the key to soliciting IRA gifts in the short time available. Education is the key. Develop a mail insert, e-mail content or phone script that:
- Spells out the benefits (e.g., they won’t pay income tax on the amount of their gift).
- Directs donors to request a “qualified charitable distribution” from their IRA administrator.
- Provides your organization’s federal tax ID.
- Urges them to act now.
- Asks them to consult their tax advisor for full information.
Make Your Voice Heard
Senator Charles Schumer (D-NY) has introduced legislation to extend this provision. The Public Good IRA Rollover Act would also lift the cap from the current $100,000 per year, reduce the age at which a person could make rollover donations to 59½, and expand the eligible organizations to include donor-advised funds.
Nonprofits are encouraged to follow the progress of this legislation (H.R.2502 and S.557) closely.
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For more information, please contact:
Lori A. Sheets, CPA
Senior manager and practice leader
330.255.2481
Email