Charitable IRA Rollovers
Available until December 31, 2007
The Pension Protection Act of 2006 includes the opportunity for lifetime tax-free transfers from Individual Retirement Accounts to qualified charities. Key elements include:
- Individuals age 70 1/2 and older may transfer up to $100,000 per year in 2006 and in 2007 directly from an IRA to a qualified charity
- The qualified charitable distribution from the donor’s IRA is not includable in federal taxable income, and does not generate an itemized charitable contribution deduction
- Qualified charitable distributions may be made only from Traditional IRAs and Roth IRAs and may not be made from qualified retirement plans such as 401k plans and profit sharing plans
- Qualified charitable distributions must be made outright to the qualified charity and cannot be used to fund charitable remainder trusts or gift annuities.
The legislation will be particularly advantageous to Michigan residents because charitable deductions cannot be itemized on the Michigan state income tax return. Now, with charitable IRA rollovers available, Michigan residents may make charitable gifts of IRA assets in a tax-advantaged way. The legislation will also be particularly helpful to donors who do not itemize deductions on their federal return and to donors who have already maxed out their federal charitable contribution deduction by contributing 50% or more of their adjusted gross income to charities.
Please note that the new rules apply only to lifetime gifts of IRA assets. The rules for transfers at death remain unchanged.