Frequently Asked Questions about Charitable IRA Rollover Distributions
Now you can reliably plan charitable IRA rollover gifts, year after year. On Dec. 18, 2015, the White House signed legislation indefinitely extending the charitable IRA rollover, making it retroactive to Jan. 1, 2015, with no expiration date.
What is a Charitable IRA Rollover?
The charitable IRA rollover, or qualified charitable distribution (QCD), is a special provision allowing particular donors of age 70.5 to exclude from taxable income—and count toward their required minimum distribution—certain transfers of Individual Retirement Account (IRA) assets that are made directly to public charities, including the American Association for Cancer Research (AACR).
Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP [Simplified Employee Pension] plan or SIMPLE IRA [typically for smaller employers]) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified (i.e. recognized by the IRS) charity. (See Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs) for additional information.) This is granted in the Consolidated Appropriations Act of 2016.
Since it was first made available in tax year 2006, many donors age 70.5 or older have used this popular option to support the areas of their choice with tax-wise gifts ranging from $100 to $100,000.
How Does This Help Me?
A charitable IRA rollover makes it easier to use your IRA assets, during lifetime, to make charitable gifts. Your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. For example, if your 2019 required minimum distribution was $10,000, and you made a $5,000 qualified charitable distribution to the AACR for 2019, you would have had to withdraw another $5,000 to satisfy your 2019 required minimum distribution.
- If you have “maxed-out” your charitable deductions: a qualified charitable IRA distribution operates separately from the percentage rules that limit the tax benefit of individual charitable giving. Therefore, for individuals inclined to give more, the charitable IRA rollover is an ideal option. IRA rollover gifts do not count toward the 50% of adjusted gross income limitation on charitable gifts of cash.
- If you are a non-itemizer: Because qualified charitable distributions from IRAs do not require the donor to claim an income tax charitable deduction, non-itemizers can also take the equivalent of a charitable deduction via the IRA rollover and indicate that on the front page of the IRS Form 1040 without itemizing.
What if a Donor Contributes More Than $100,000 to a Qualified Charity From an IRA?
Since the amount that the donor is able to exclude from income is limited to $100,000 under the Pension Protection Act (PPA), the remaining amount would be recognized as income. The donor may still contribute the additional amount to charity; however, the extent to which that additional amount can be deducted from the individual’s income will be determined following general rules about percentage limitations and the itemized contribution reduction.
My Spouse also Supports the AACR. Can We Both Take Advantage of the IRA Charitable Distribution?
Yes. The amount that can be excluded from income is limited to any amount up to $100,000 per taxpayer year. As a married couple, you can together donate up to $200,000 provided that each of you own at least one IRA and have reached age 70.5.
Do I Have to Pay State or Socal Taxes on My IRA distribution?
You may—states and municipalities differ on whether you need to include the distribution in your taxable income. Check with your tax or financial advisor, or your taxing authority, to be sure.
What Gifts Qualify for a Charitable IRA Rollover?
A gift that qualifies, technically termed a “qualified charitable distribution,” is:
- Made by a donor age 70.5 or older.
- Transferred from a traditional or Roth IRA directly to a permissible public charity, such as the AACR. (If giving in this manner, please tell your broker or fund manager to name you as the donor on the transfer, and if your gift is intended to provide support for a particular area of the AACR’s mission, have the broker specify that as well.)
- Completed during the applicable tax year.
Is an Income Tax Deduction Also Available?
No. The gift would be excluded from income, so providing a deduction in addition to that exclusion would create an inappropriate double tax benefit.
Can Other Retirement Plans, Such as 401(k) and 403(b) Accounts, be Used?
No. However, it may be possible to make a tax-free transfer from such other accounts to an IRA, from which a charitable rollover can then be made. An additional option is to name the AACR as a beneficiary on your company-sponsored retirement plan (e.g. 401 (k) or 403 (b), which could pass to the AACR without incurring taxes.
Can a Gift be Made to any Charity?
No. Excluded are:
- Donor advised funds
- Supporting organizations
- Private foundations
Can a Rollover Gift be Used to Pay my Pledged Support to the AACR?
Yes. You can honor your gift pledge to the AACR with one or more qualified charitable IRA rollover transfers of up to $100,000 per person, per calendar year. You can direct your IRA provider to transfer your charitable gift to the AACR quarterly, annually, or other timing that works for you. Simply have your provider indicate that the transfer is a gift from you.
Can a Rollover Gift be Used to Fund a Charitable Remainder Trust or Charitable Gift Annuity?
No. The donor can receive no benefits in return for the gift. This includes life income plan payments.
Are There any Other Benefits That a Donor Can Receive?
The only permissible benefits from a charitable IRA rollover gift are those that would not reduce the tax deduction for which the donor would have otherwise qualified.
What if a Withdrawal Does not Meet the Requirements of a Charitable IRA Rollover?
It simply will be included in taxable income as other IRA withdrawals currently are.
Can I Still Make a Gift With an IRA Beneficiary Designation?
Absolutely! Whether or not you choose to make a charitable IRA rollover gift, you can still designate the AACR as a beneficiary to receive IRA assets after your lifetime. The lifetime charitable IRA rollover is simply another option for donors who would like to see their philanthropy at work now.
If I Made a Charitable IRA Rollover Gift in Other Tax Years, Can I Do This Again for the Current Tax Year?
Yes. The current law extends the charitable IRA rollover provision indefinitely – with no expiration date – allowing individuals to make qualifying gifts every tax year.
Is a Donor Limited to One IRA Charitable Distribution per Year, or Can a Donor Request Multiple Transfers?
Donors aged 70.5 or older are limited to a maximum of $100,000 in any one year as an IRA charitable distribution; however, there is no requirement that the entire amount be made in one transfer or that the entire amount go to a single qualified charitable organization. Donors can request multiple direct transfers from their IRA to qualified charities in a year, but only $100,000 will be excluded from income as an IRA qualified charitable distribution.
How Do Individuals Make a Qualified Charitable Distribution?
Individuals must instruct their IRA trustee to make the contribution directly to an eligible charitable organization. See sample language below or request a convenient form from the AACR with instructions to your IRA administrator for completing the rollover.
A Donor Wants to Utilize the IRA Charitable Distribution for His/Her 2019 Required Minimum Distribution. Does the AACR Foundation Need to Physically Receive the Check by December 31, 2019 or is it Sufficient for the Check to be Put in the Mail?
To take advantage of the IRA charitable distribution, the distribution must be sent directly from the IRA company to the AACR Foundation. IRS Publication 526 discusses the rules for delivery of charitable contributions and explains that generally, the date of mailing would qualify as the date the gift is made. Accordingly, if the IRA company mails the distribution check to the AACR Foundation by December 31st, it would be counted as an IRA distribution in 2019.
May a Charity Provide any Goods or Services in Return for the Contribution?
No. If donors receive any goods or services (e.g., tickets to a fundraiser) that would have reduced their charitable deduction had they made an outright gift to the charity, the rollover of assets from an IRA will not qualify for the tax-free treatment under this provision. IRS Publication 1771, Charitable Contributions—Substantiation and Disclosure Requirements contains information about disregarded benefits.
Can Individuals Make a Qualified Charitable Distribution for Split Interest Gifts?
No. Charitable lead trusts and charitable remainder trusts are examples of giving vehicles that are not eligible to receive qualified charitable distributions. Further, because individuals cannot receive a benefit in return for an IRA distribution, any contribution donors make in return for a charitable gift annuity would not be eligible for the tax-free treatment.
Aruna K. Pappu, Esq.
Email: [email protected]