New Pension Law Also Provides For Charity
Since 1974, millions of Americans have saved billions of pre-tax dollars in Individual Retirement Accounts (IRAs). Thanks to continued savings and investment returns, an estimated $3.6 trillion is currently invested in IRAs, and the total continues to grow. Now, under the federal Pension Protection Act of 2006, IRA owners may share the wealth of their retirement savings by giving directly to charity-without first counting it as income and paying income tax.
Thanks to decades of deliberate saving and favorable investment returns, a substantial share of today’s retirees have more money in their IRAs than they’ll ever need. Many have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals. Others have asked about designating their children as beneficiaries, but that may result in additional tax consequences. For larger estates, experts estimate heirs will receive less than 25 percent of most IRA assets that pass through estates.
The Pension Protection Act of 2006 creates a new option: 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 gifts made this year.
As was the case in 2006 and now in 2007, holders of traditional and Roth IRAs who are at least 70 ½ years old can make direct charitable transfers of IRA assets up to $100,000 per year. As a qualified public charity, the Community Foundation for Southeastern Michigan can accept gifts of such assets into unrestricted, field-of-interest and designated agency endowment funds. A tax-free IRA transfer to a Community Foundation endowment may also qualify to receive 50 percent match under the Community Foundation’s current endowment matching-gift opportunity.
The IRA provision expires at the end of 2007, unless Congress extends it. The legislation also contains provisions that address charitable gifts of items such as food, clothing and personal property, such as art, as well as including provisions covering private foundations and supporting organizations.