Charitable IRA Rollover

Oscar J. Craig Heritage Society: Gift Planning Corner

Age has its benefits.  If you are at least 70 1/2 years old, you can make a direct charitable gift to The University of Montana Foundation of up to $100,000 this year from your IRA assets without having to pay federal taxes on the withdrawal. This special provision will be available through December 31, 2011. In addition, such a gift will qualify for the “required minimum distribution.”

Consider this hypothetical case: Ms. Griz is 71 years of age and must take the required distribution before December 31. In her case, she must withdraw almost 4 percent of the total value of her $800,000 IRA, or $32,000. In the process, she must pay ordinary income tax on this amount.

Instead of a withdrawal, she makes a distribution of $32,000 to the UM Foundation as an outright gift. The amount “rolled over” to the UM Foundation is not subject to federal tax, and it satisfies her mandatory distribution requirement. Because the gift goes directly to the UM Foundation, there is no income tax charitable deduction.

If Ms. Griz takes the distribution directly and then gives it to the UM Foundation, she can claim a charitable deduction, but the distribution will be taxed. If she is able to use the entire deduction it will offset the taxable distribution and the net effect will be the same as a direct
rollover from the IRA to the UM Foundation. However, if she does not itemize deductions, if she cannot use all of the deduction because of the ceiling on charitable deductions, or if increasing her income would result in the loss of exemptions and itemized deductions, the rollover would be preferable. Certainly, it is a simple, one-step process for making her gift.

Another option for Ms. Griz is to maximize the benefit of the charitable IRA rollover by using the full authorized amount of $100,000. This would permit her to reduce the size of her IRA without paying federal taxes. And, of course, it would allow her to make a substantial gift to support UM at a time when such contributions are especially needed.

To learn more about this tax-wise way to support UM, call Theresa Boyer, director of gift planning, toll-free at 800.443.2593 or visit the planned giving section of our website.

It is not known whether the charitable IRA rollover will be available beyond 2011, so you may want to consider such a gift for this year. We also suggest you talk with your tax advisor to be sure a rollover gift is appropriate for you, and that it will occur correctly.