Tax-free IRA Charitable Rollover and Proposed Public Good IRA Rollover Act
Advising clients at tax time with questions about retirement funds

An estimated $3.6 trillion is currently invested in IRAs and the total continues to grow. Due to the Pension Protection Act of 2006 (PPA), qualified IRA owners can give a portion of their retirement savings directly to charity without first counting it as income and paying income tax.

Holders of traditional and Roth IRAs who are at least 70-½ years old can make direct charitable transfers of up to $100,000 per year from qualifying IRAs. The provision is time-limited; it applies only to distributions made in taxable years beginning after December 31, 2005 and before January 1, 2008.

If an individual rolls over certain IRA assets to a charity, he/she does not receive a charitable deduction under the PPA conditions currently in place. The benefit under this provision is that the individual does not recognize the amount contributed directly from the IRA to a qualifying charity. Because the person does not include the amount in his/her gross income, he/she may not take a charitable contribution deduction for the contribution. To do so would allow the individual to receive a double benefit from the contribution, so a charitable deduction is explicitly prohibited.

Most contributions to public charities other than supporting organizations are considered qualified charitable contributions. However, distributions to donor advised funds held by public charities are not considered charitable distributions. Also private non-operating foundations and split interest trusts, such as charitable remainder trusts, are not eligible for special treatment as qualified charitable distributions under the new law.

At the Silicon Valley Community Foundation, a qualified individual can transfer retirement assets from an IRA or Roth IRA to an endowment that will grow over time. The endowed charitable fund may be made in the name of a person or organization designated by the donor of the IRA. The holder of the IRA may also give to a designated fund at the community foundation for the purpose of one to two designated nonprofit organizations. It is important to note that the liquidation of the IRA must occur within the charitable fund in order to eliminate the individual’s estate from being taxed.

On March 8, members of Congress introduced the Public Good IRA Rollover Act of 2007—an update to the PPA. If passed, the new act would permanently remove the $100,000 annual limit on donations and would provide IRA owners with a planned giving option starting at age 59-½. We will keep you informed of the status of the act in the months ahead.

If you have any questions, please contact our Professional Advisor Relations Officer Karyn Cilker at kjcilker@siliconvalleycf.org or 408.278.2287.