IRA Charitable Rollover

CGP has long advocated in favor of public policy that encourages charitable giving, a position which is based upon the critical role of philanthropy in this country, as outlined above. In this spirit, CGP supports federal legislation that permits Americans to transfer money from their Individual Retirement Accounts (“IRAs”) directly to nonprofit organizations for charitable purposes, without suffering tax penalties. This legislation is commonly referred to as the IRA Charitable Rollover.

A limited version of the IRA Charitable Rollover was first enacted into law as part of the Pension Protection Act of 2006 (Public Law 109–280) in August 2006. This provision permitted IRA owners beginning at age 701⁄2 to make outright charitable gifts of up to $100,000 per year from their IRAs directly to eligible charities for calendar years 2006 and 2007. The donor did not have to report the distribution as taxable income and was not entitled to claim a charitable income tax deduction for the gift. Over the intervening years, the IRA Rollover lapsed several times, only to be retroactively extended, often with just weeks or days left in the calendar year for donors to act. Thankfully, the IRA Rollover provision was made a permanent part of the tax code in December 2015.

CGP is pleased to report the IRA Rollover has generated an enormous amount of new charitable giving and has the potential to facilitate even more giving. For example, CGP has received anecdotal reports of thousands of separate charitable gifts made pursuant to the provision, totaling hundreds of millions of dollars. In addition, reports to CGP show the most common IRA Rollover gift has been $5,000, with the majority of gifts ranging between $1,000 and $10,000, which means the IRA Rollover is allowing older Americans, particularly those individuals who do not itemize their tax deductions and would not otherwise receive any tax benefit for their charitable contributions, to donate relatively modest amounts of money to thousands of nonprofits that work every day to enrich lives and strengthen communities across the country. The IRA Rollover works, and CGP urges Congress to retain this important provision in any rewrite of the tax code that takes place this year.

Moreover, CGP supports legislation which would expand the IRA Charitable Rollover to authorize tax-free IRA rollovers for life-income gifts to benefit both charities and provide taxable retirement income for donors. This legislation, known as the Legacy IRA Act (H.R. 1337), expands current law by permitting life-income rollovers at age 65 while maintaining direct rollovers beginning at age 701⁄2. Qualified life-income plans include charitable remainder trusts and charitable gift annuities. There is a $400,000 cap for life-income gifts beginning at age 65, and for individuals 701⁄2 or older, the combined ceiling for direct and life-income transfers is $400,000 with a $100,000 cap for direct transfers.

Under the authorized life-income plans, the IRA owners will be taxed on income received at ordinary income tax rates. Because the payouts on these plans are five percent or more, there generally will be more income paid from the charitable life- income plans than under the normal minimum required distribution rules for

IRAs. Further, the only authorized income beneficiaries of the life-income plans are the individual IRA owner, his or her spouse, or both. At death, the assets in the plan go directly to the named qualified charity or charities and not to family members.

This change is critical because IRAs and other qualified plans contain trillions of dollars in assets. Many of the owners of these accounts want to make charitable gifts but also need retirement income. Life-income gifts under the Legacy IRA Act are a way for these donors to combine charitable gifts with retirement income. It will allow Americans of average means (who meet the minimum age requirement), and not just wealthy taxpayers, to benefit charities and the people and communities those charities serve.

According to the Joint Committee on Taxation, the bill’s score is $106 million over 10 years. This is a tiny fraction of the money – potentially billions of dollars in new charitable giving – that charities could receive if the Legacy IRA Act is enacted into law.

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