Tax Free Charitable Transfers from IRAs

Holders of traditional and Roth IRAs who are 70 ½ years old or older can make a direct charitable transfer of up to $100,000---without being taxed. Until now, there was a disincentive for retirees to give IRAs to charity during their lifetimes because withdrawals from IRAs were subject to income tax—even those given to charity.

This is a time limited tax provision

A provision in the new Federal Pension Protection Act of 2006 created this new option of transferring IRA assets directly to charity. By going directly to charity, the money is not included in the IRA owner's income and--most importantly--is not taxed, preserving the full amount for charitable purposes. The law covers only gifts made in 2006 and 2007. Many folks with an IRA do not realize that once they turn 70 1/2 or older, they are required to withdraw a minimum amount each year, even if they don’t need it. They also must pay taxes on the money.

You can make a difference.

Your community foundation can help you connect to the causes you care about most. You can set up a charitable fund in your name or make a gift to one of our existing funds.

Process

Do not withdraw the funds yourself. Request a distribution form from your IRA administrator and ask that the check be made out to the Mt. Pleasant Area Community Foundation. The transaction must be completed before January 1, 2008, so be sure to allow 30 days for the process to be completed. Be sure to notify the Mt. Pleasant Area Community foundation of your plans.

Retirement Assets

You can give more for less.

For years, estate planners have recommended that retirement assets may be the most tax-effective asset in larger estates to distribute to charity. These assets are not only vulnerable to heavy taxation as part of an estate but also can be taxed again as income in respect to a decedent on the tax returns of heirs.

Gift at death

You can designate the Foundation as beneficiary of your IRAs, tax sheltered annuities, or 401(k) or 403(b) plans. This avoids income, estate and generation-skipping taxes.

Gift during life

To make a direct gift of your IRA assets to the Foundation during your lifetime, you must first withdraw the assets and recognize the distribution for income tax purposes. You can then contribute the funds to the Foundation and claim an income tax charitable deduction to mitigate the income tax liability. Note: There may be penalties for early withdrawal of IRA assets.