Recent changes in the tax code have extended the IRA charitable rollover through December of 2009. This provision was first offered by Congress in the wake of the Katrina disaster in New Orleans to encourage charitable giving and it has proven to be a popular way for retirees to make gifts to charitable causes.
If you are at least 70½ years old (at the time of the transfer) you can still use your IRA to make a direct charitable gift of up to $100,000 this year from your IRA without having to pay federal income taxes on the withdrawal. It is a withdrawal, by the way, which qualifies to be a part of your Required Minimum Distributions for the year.
The following is an example of how it could work. Keep in mind that everyone's situation is different and requires thorough study and often also requires professional advice to achieve the results you desire.
Mrs. OBU Donor is 72 and has a Required Minimum Distribution of 4 percent for 2009. At her valuation date her IRA was valued at $800,000. This means she must take at least a $32,000 withdrawal for the current tax year and will have to pay income taxes on it. Now, like many people in her situation, she doesn't need to take the withdrawal to live on. She lives simply and has enough income from Social Security and a few other investments.
She would like to continue to fund an endowed scholarship which she and her husband started before his death. However, if she took the $32,000 distribution and then wrote a check to OBU, it would make part of her Social Security income taxable and she would only be able to take a charitable deduction of a little more than $16,000 because there is a federal limit upon a person's charitable deductions of 50 percent of adjusted gross income. This means that she would also be taxed on the amount of the withdrawal above the 50 percent limit. So besides being taxed on a quarter of her Social Security, she also would pay taxes on the $16,000 above the deductible amount. Because of Oklahoma's tax structure (which is similar to the structures in many other states) she would have to pay these additional income taxes at the state level also.
Then Mrs. Donor heard about the extension of the Charitable IRA Rollover law. She called John Little in the OBU Planned Giving Office to inquire about it. He offered suggestions about how it might work for her, sent her a fact sheet, and suggested that she discuss it with her financial planner, her lawyer or her tax accountant (or even all three).
What John told her was that if she "rolled" a distribution out of the IRA directly to OBU, without "touching" it herself, then she would get credit for her Required Minimum Distribution, she would satisfy her plans for the endowed scholarship and by doing this, in her case, there would be no tax impact on her - none at all! What's more, she didn't need to limit herself to the $32,000 Minimum Required Distribution amount.
The law will allow up to a total of $100,000 in gifts to charities for an individual, who otherwise qualifies, during 2009. Why don't you follow Mrs. Donor's lead, and check with John Little as she did? He can be reached at (405) 878-2718 or on his mobile phone at (405) 760-8455. You can write to him by e-mail at firstname.lastname@example.org or mail correspondence to Oklahoma Baptist University, Attention: John Little, 500 W. University, Shawnee, OK 74804.