Simple Outline

of

Charitable IRA Provisions of the 2006 Pension Protection Act

by

Richard S. Scolaro, Esq.

Scolaro, Shulman, Cohen, Fetter & Burstein, P.C.

507 Plum Street, Suite 300

New York, NY 13204

Phone:  (315) 471-8111

Fax:  (315) 471-1355

Email:  rscolaro@scolaro.com 

 Printed by permission

1.       Distributions to Public Charity

For years 2006 and 2007, distributions from an IRA directly to a Qualified Charity, to wit:

          a.       public charity; or

          b.       private conduit foundation (§170(a)(1)(A))

do not have to be included in the taxable income of the "donor".

BUT, the charitable deduction is not available.

2.       Benefit:       Not having to report the income and not being able to deduct the charitable contribution is significantly more advantageous than current law, which requires the distribution to be included on your tax return. 

          Concern:    -        Limitation of $100,000 in 2006 and $100,000 in 2007 only; and

                             -        Transfer must be made directly from the IRA to the charity.

3.       Eligibility

          a.       Persons that have attained the age of 70½ or older

          b.       The donee charity must be a public charity or a conduit private foundation.

          c.       The provision applies only with respect to IRA's - not 401(k)'s or SEP's, etc.

BE CAREFUL!

While a direct distribution to the charity is permitted, an administrator cannot be compelled to actually make the distribution.  Thus, the owner of the IRA could make a request to the administrator and the administrator could refuse to do so.

4.       Who Benefits?

          a.       Individuals age 70½ or older who have charitable intent because:

                   (i)      you avoid inclusion of the IRA funds in taxable income;

                   (ii)      the distribution satisfies a minimum distribution requirement for that year (either all or in part, but then again, the amount required to be distributed and the amount of charitable distribution may be different)

                   (iii)     non-deductible, voluntary contributions would not be taxable to the beneficiary.  Thus, the new law directs that the distributions directly to the qualifying charity be made first from the taxable portion. 

5.       Additional Benefits

a.       A charitable contribution is an itemized deduction.  Thus, it is subject to the 50% of the contribution base (basically, adjusted gross income) or other limitations.  Non-itemizers, therefore, benefit.  Similarly, as itemized deductions are phased out, the benefit becomes more important.

          b.       Many states do not permit charitable contributions as a deduction from income (i.e., Michigan, Ohio).

          c.       The 50% limitation on charitable deductions is avoided.

BE CAREFUL!

Donor-advised funds and supporting organizations are not eligible beneficiaries.  The contribution must be made after reaching age 70½.  Thus, the distribution could not be made until after the date in the year in which the person reaches age 70½.