The IRA Charitable Rollover is an opportunity for donors to establish an endowment or make an outright charitable gift with a tax-free distribution from your IRA. Consider taking advantage by making a non-taxable distribution from your IRA to the Jewish Foundation, Jewish Federation Annual Campaign, synagogues, local agencies, or any charitable program or organization. You can designate the distribution for current needs or endowment purposes. The gift can be earmarked for scholarships, capital projects, or any of the many vital programs and projects that impact our community.
HERE’S A HYPOTHETICAL SITUATION:
Mr. Cohn distributes $18,000 from his IRA to his synagogue to establish a permanent endowment, providing annual funding for synagogue school scholarships. Mr. Cohn names the fund after his grandchildren. Without the IRA Charitable Rollover, Mr. Cohn’s donation would be subject to federal and Connecticut income tax regardless of whether it was distributed directly to charity. Although he could claim a corresponding “charitable income tax deduction” on his federal income tax return, he could not claim any deduction on his Connecticut income tax return. The State of Connecticut would tax the distribution. With the IRA Charitable Rollover, the $18,000 distribution is non-taxable for both federal and Connecticut income tax purposes (even if it is used toward Mr. Cohn’s minimum distribution requirement). Therefore, it is tax neutral. Mr. Cohn will have created a wonderful Jewish legacy for his family and community, reduced his Connecticut income tax liability and reduced his “taxable estate.”
WHAT ARE THE ADVANTAGES?
If your income is sufficient to sustain you, and your IRA minimum distribution requirement only increases your tax liability, then this allows you to donate your distribution directly to charity without it being taxed. In addition, if you have a taxable estate, then your IRA will be subject to income and estate taxes once both you and your spouse are deceased. The result being that your non-spouse beneficiaries could receive 25 cents on the dollar for your IRA assets. The rollover, however, allows you to remove some of those tax-plagued assets from your estate while also providing you with the opportunity to make a significant charitable gift. If you have a secondary smaller IRA, which is not a necessary income source, this is an opportunity to donate that IRA to our community and make a significant and much needed impact.
TEN THINGS TO KNOW ABOUT THE IRA CHARITABLE ROLLOVER:
1. The distribution from your IRA must be made directly to the charitable organization.
2. You must be 70 ½ or older at the time that the distribution is made (note, this differs from the minimum distribution requirement where you only need to turn 70 ½ during the year).
3. The maximum amount that can qualify is $100,000.
4. You can distribute less than $100,000.
5. The IRA Charitable Rollover will satisfy your minimum distribution requirement.
6. You can rollover more than your minimum distribution requirement in addition to your minimum distribution requirement.
7. The amount of the IRA Charitable Rollover does not need to be reported as income on your federal or Connecticut income tax return.
8. Only distributions from traditional (401K and 403B are included) and Roth IRAs qualify.
9. To qualify, the distribution can only be for charitable purposes and cannot be designated for a donor advised fund, supporting organization, private foundation or life-income gift (charitable trust or annuity).
10. No goods or services can be received in exchange for the distribution (i.e. tickets or dinner).
In most cases, you will need to contact your IRA plan administrator/financial institution directly.
Please consult your professional advisor concerning your tax plans. For more information please contact, Lisa A. Stanger, Esq., Executive Director of the Jewish Foundation of Greater New Haven, firstname.lastname@example.org, (203) 387-2424, ext. 382.