IRA Charitable Rollovers

Brittany Oates, Estate Planning Attorney

The Pension Protection Act of 2006 (PPA 2006) created a new charitable planning opportunity for both 2006 and 2007. Under PPA 2006, an IRA owner age 70½ or older may make a direct transfer to charity. The transfer may be up to $100,000 in one year and PPA 2006 provided that this option will exist for both 2006 and 2007.

Permitted IRA Rollover Gifts
IRA rollover gifts may be made to Sec. 509(a)(1) and Sec. 170(b)(1)(A) public charities and certain conduit foundations. In most cases, IRA rollover gifts will be a transfer from a regular or Roth IRA to a public charity for the general purposes of that charity. However, it is permissible to make a transfer to a field of interest fund or for a qualified charitable purpose. For example, a transfer from an IRA owner age 71 to a college or university for a particular scholarship fund is permitted. Similarly, a transfer to a relief organization for a specific disaster relief fund is also acceptable.

IRA Rollover Qualifies for RMD
Each year, IRA owners age 70½ and older must take a required minimum distribution (RMD). Distributions generally commence at age 71 at approximately 3.8% and increase each year. Because the RMD must be taken by December 31 each year, the vast majority of IRA owners with larger balances take the RMD during October, November and December. Because many individuals with larger IRAs do not require the funds immediately, by delaying an RMD until the end of the year, they benefit from additional tax-free growth in the IRA. Fortunately, the IRA charitable rollover will qualify for the donor's RMD and by transferring part or all of their RMD to charity, they will have a lower taxable income.

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