Options to Give IRA Charitable Rollover Gift

IRA Charitable Rollover Gift

Please do not have QCD checks made payable to the Foundation. Checks should be made payable and sent directly to the church or charity that the donor would like to benefit.

 

Federal legislation was passed at the end of 2015 making the IRA direct charitable rollover gift option permanent.  Now, each year, persons over age 70 ½ may make gifts to charity directly from individual retirement accounts (IRAs) without including the distribution as personal income, but counting the gift toward the required minimum distribution.  These “qualified charitable contributions” (QCDs – i.e., those issued directly from the IRA administrator to the charity) must meet certain guidelines to qualify as a charitable gift:

Requirements

  • •   You must be at least age 70 ½ when the gift rollover distribution is made.
  • •   The law applies only to IRA accounts (either Traditional or Roth). Other plans such as 401(k) or 403(b) plans do not qualify.
  • •   The QCD(s) must be made directly from your IRA administrator to your church, UM organization or other favorite charity. (For those with check writing privileges on their IRA accounts, this may be the most efficient way to make gifts directly from an IRA.) 

Key Points

  • •   Total IRA rollover gifts are limited to $100,000 per taxpayer per year. If married and each spouse has an IRA, then each may gift up to $100,000 per year.
  • •   The gift counts toward your IRA required minimum annual distribution (RMD).
  • •   The gift distribution is excluded from your income for both federal and Missouri state income tax purposes. Although you cannot deduct the gift on your income tax return, the distribution is not reported as income so there is no adverse income tax effect.
  • •   Your QCD may not be used to contribute to a private foundation, donor advised fund, supporting organization, a charitable gift annuity or a charitable remainder trust.
  • •   (Note: The distribution will not qualify under this legislation if the IRA owner receives the distribution and then writes a check to the charity. Such distributions are income to the owner, and the owner may then claim an itemized charitable deduction for the gift.)
  • •   Be sure to request a proper gift receipt from your church or charity. (The Foundation has a sample church IRA gift receipt below.)


Avoid the Year-end IRA Gift Trap!
Many large IRA administrators now offer IRA owners the option to write checks out of their IRA account. This means that when an eligible IRA owner wants to make a charitable IRA rollover gift to their church, they can just write a check from that account and mail it. It sounds simple.  What could possibly go wrong?

The problem:
Donors are used to writing gift checks from a regular checking account near the end of the year and mailing them. So long as they are postmarked by December 31, the gift is a deductible charitable gift when mailed.  This does not apply to IRA gifts that the donor wants to count as Qualified Charitable Distributions in the current year!  The QCD rules require action by the IRA administrator, which means the date of gift is established when the IRA administrator transfers funds after the church deposits the check. If a donor mails an IRA check to their church in late December and the church does not cash it until early January, two things occur:

  • •   The donor will not get credit for the distribution in the year they mailed it. The distribution will be a QCD in the new tax year. 
  • •   If the donor was counting on the distribution to meet their required minimum distribution in the current year, then they will have to pay a 50% penalty on the amount that was not distributed. That will be one unhappy donor!

The solution:

  • •   Churches: Remind your donors to make their charitable IRA rollover gifts several weeks before the end of the year.
  • •   Churches and Donors: Alert the church office to deposit all checks promptly! This should be a standard practice for the church, and donors can contact the church office to give them an extra heads-up that an IRA gift is coming.

This gift provision is included in legislation titled “The Protecting Americans from Tax Hikes Act of 2015” which simply renewed the provisions already found in the Internal Revenue Code Section 408(d)(8).  The forgoing outline is provided for informational purposes only and is not intended as financial, tax or legal advice.  Individuals will want to discuss this with their own professional advisors and IRA administrators.  (Donors and church administrators may contact the Foundation for assistance and information at 800-332-8238 and/or download sample materials below)

To view information about Qualified Charitable Distributions from an IRA as posted on the IRS website, please follow this link:  www.irs.gov/QCDinfo

Ask David


Contact David Atkins for answers to your charitable giving questions.

datkins@mumf.org

 

800-332-8238