IRA Charitable Rollover Background

Read Stories of How the IRA Rollover Helps People Give and Improve Their Communities IRA Charitable Rollover Talking Points (PDF) Send a letter to your Members of Congress IS Statement on Economic Stimulus...1/24/08 Letter (PDF) to Senate Leaders...12/11/07 Letter (PDF) to House Leaders...12/11/07 Fact Sheet (PDF) on the IRA Charitable Rollover IRA Rollover sign-on letter Printable version (PDF) Add your organization’s name to the letter Text of the Public Good IRA Rollover Act of 2007 (PDF) On This Page The current law Tools to help charities and donors take advantage of the IRA Charitable Rollover Tracking your experiences with and the impact of the IRA Rollover on charitable giving Additional resources Also see: Public Policy Background on the IRA Charitable Rollover

IRA Rollover Provision Expired; Drive for Extension Continues

The IRA Charitable Rollover provision, which provided persons aged 70½ and older with the opportunity to contribute to charity out of their individual retirement accounts, expired at the end of 2007. A one-year extension of the IRA rollover and other charitable giving incentives had been included in a House-passed bill (H.R. 3996) that provided short-term relief from the alternative minimum tax (AMT). These provisions were dropped, however, by the Senate in early December.

Independent Sector submitted a statement to the Senate Finance Committee to encourage it to consider the full range of interests, including those of the charitable community and those it serves, as it develops legislation to stimulate the economy.  The statement focuses on two measures that could help charities to obtain resources that they would put to use immediately : extensions of the IRA charitable rollover provision and of the food donation incentive, both of which expired at the end of last year.  By removing the barrier that had impeded older Americans from making charitable donations from their IRAs, the rollover had encouraged millions of dollars of new contributions. Those contributions provided an important stimulus to the economy by taking money from passive investment accounts and injecting it into projects such as building cancer centers, assisting food banks, and supporting adult day-care centers. Extension of the IRA rollover will also provide thousands of charities with extra resources they need to respond to the growing demand for their services from individuals adversely affected by the economic slowdown.

Congress is also expected to take up legislation in early 2008 to extend expired tax provisions, possibly retroactive to January 1. Independent Sector is working with others in the charitable community to ensure that the IRA rollover is included in that legislation.We encourage IS members to urge their members of Congress to include the IRA rollover in 2008 legislation, retroactive to January 1. We have provided a sample letter that can be tailored to fit your organization.

Independent Sector and the National Committee on Planned Giving sent a letter (PDF) to House and Senate leaders urging them to extend the IRA charitable rollover before its expiration at the end of 2007. In November, Independent Sector sent a letter (PDF) to House members to urge passage of H.R. 3996 and extension of the giving incentives that support important charitable work, while recognizing differences regarding the need for offsets. A similar letter (PDF) was sent to Senate leaders.

Sponsors Introduce IRA Charitable Rollover Bill....3/8/07

Senators Byron Dorgan (D-ND) and Olympia Snowe (R-ME) and Representatives Earl Pomeroy (D-ND) and Wally Herger (R-CA) have introduced the “Public Good IRA Rollover Act of 2007” in the House (H.R. 1419) and Senate (S. 819).

Currently, the IRA rollover permits individuals age 70½ and above to make charitable donations of up to $100,000 from Individual Retirement Accounts (IRAs) and Roth IRAs without having to count the distributions as taxable income. The “Public Good IRA Rollover Act of 2007” would extend and broaden the current IRA Rollover, scheduled to expire this December, by making it permanent, removing the current $100,000 annual limit on donations, making all charities eligible to receive donations, and providing IRA owners with a planned giving option starting at age 59½.

The existing IRA Rollover, though limited, has already led Americans to make millions of dollars in new charitable donations from their IRAs. Initial reports to the National Committee on Planned Giving already show that during the first four months the provision was in effect, Americans made more than $50 million in contributions to nonprofits through the IRA rollover.

Please add your organization’s name to the sign-on letter to help us line up cosponsors for the IRA Rollover legislation and to show Congress the nonprofit community’s widespread support for the IRA Charitable Rollover. In addition, now is your opportunity -- as a charitable organization or as a donor -- to take advantage of this valuable incentive.

Current Law

During 2006 and 2007, the newly enacted IRA rollover provision permits individuals age 70½ and above to make charitable donations of up to $100,000 from Individual Retirement Accounts (IRAs) and Roth IRAs without having to count the distributions as taxable income. The IRA Charitable Rollover is intended to benefit donors of all incomes, as well as big and small nonprofits alike. Now is your opportunity -- as a charitable organization or as a donor -- to take advantage of this valuable incentive.

President Bush signed the IRA Charitable Rollover into law on August 17, 2006, as part of the Pension Protection Act of 2006 (Pub. Law 109-280). The Pension Protection Act also included a series of other important charitable giving incentives and safeguards.

• How does the IRA Rollover Work? Taxpayers age 70½ and older are required to make annual distributions from their IRAs. The distributions are included in the taxpayers’ adjusted gross income, and taxpayers pay taxes on them. The IRA Charitable Rollover permits taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their AGI and, consequently, without paying taxes on them.
  
  
• Give Now. Only contributions made between January 1, 2006 and December 31, 2007, are eligible for the enhanced tax benefit.
  
  
• Age Requirement. Donors must be 70½ years old or older when the distribution is made.
  
  
• Donation Limit. A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year.
  
  
• Eligible Charities. Charitable contributions from an IRA must go directly to a public charity. Contributions to supporting organizations, donor-advised funds, and private foundations, except in narrow circumstances, do not qualify for the tax-free treatment.
  
  The tools below show charities more about determining eligibility to receive tax-free IRA distributions, including the possibility of changing tax-exempt classification.
  
  
• Eligible Retirement Accounts. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.
  
  
• Directly to the Charity. Distributions must be made directly from the IRA trustee payable to the public charity.
  
  
• No Gifts in Return. Donors cannot receive any goods or services in return for charitable IRA rollover contributions in order to qualify for tax-free treatment.
  
  
• Written Receipt. In order to benefit from the tax-free treatment, donors must obtain written substantiation of each IRA rollover contribution from each recipient charity.
  
  The tools below show donors what they can do to obtain necessary documentation of a gift.

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Tools to Help Charities and Donors Take Advantage of the IRA Charitable Rollover

• Fact Sheet for Charities (PDF): Charities, see this fact sheet to learn about the requirements of the IRA Charitable Rollover and to help your donors take advantage of this incentive.
  
  
• Fact Sheet for Donors (PDF): Donors, use this fact sheet to learn how to take advantage of the IRA Charitable Rollover. Charities, distribute the fact sheet to your donors.
  
  
• Sample Letters
  Donors: In order to receive a tax benefit, you must obtain a receipt containing certain information from each charity to which you make an IRA distribution. Use these sample letters, created by the Planned Giving Design Center, to make sure your IRA administrator provides all necessary information to the recipient charity and to alert the charity to your forthcoming gift.
  Charities: Use PGDC's sample letter to provide written acknowledgement to your donors. (Scroll down to the end of Mark Hoffman's article to see the sample documents.)
  
  New!
• Questions and Answers, from Treasury/IRS: Donors and charities, see guidance (PDF) on frequently asked questions about making charitable distributions from IRAs, from the Treasury Department and Internal Revenue Service (Notice 2007-7, pages 13-16).
  
  
• Changing Your Exempt Organization Classification: Supporting organizations, see the Internal Revenue Service's guidance (PDF) (Announcement 2006-93) explaining how a 501(c)(3) tax-exempt organization can seek to change its public charity classification. This guidance is intended for organizations that are currently characterized as supporting organizations -- and, as such, are ineligible to receive tax-free distributions from IRAs -- and believe they are eligible to change their classification.
  
  
• Reporting IRA Rollover Distributions on the Form 990-R: Donors, see the Internal Revenue Service’s corrected instructions explaining how to report charitable IRA distributions on the 2006 Form 1099-R.

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Tracking Experiences with and the Impact of the IRA Rollover on Charitable Giving
As donors, charities, and IRA administrators use the IRA Charitable Rollover for the first time, they are naturally encountering unanticipated questions and challenges. Independent Sector and others in the nonprofit community are working with the U.S. Department of Treasury and Internal Revenue Service to resolve unintended consequences. Share your experiences with Independent Sector by emailing us at publicpolicy@independentsector.org.

Also, complete the National Committee on Planned Giving's Survey of IRA Rollover Gifts to Charity. NCPG, co-chair with IS of the IRA Rollover Coalition, is tracking information on IRA Rollover gifts to charity so that it is able to report the impact of the gifts to legislators and identify questions and problems that may impede the widest possible implementation of the incentive.

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Additional Resources

• See Independent Sector's Tax Tips for Charities (PDF), designed to help charities evaluate how they might be affected by the IRA Rollover and other charitable provisions enacted as part of the Pension Protection Act.
  

• See Independent Sector's Tax Tips for Donors (PDF) to learn about how the IRA Rollover and other new charitable giving incentives enacted as part of the Pension Protection Act will affect what donors can claim as a deduction for their charitable contributions and what their responsibilities are.
  
  
• See Christopher Hoyt’s “More Than Pensions: What Estate Planners Need to Know About the Pension Protection Act of 2006” (PDF) for a detailed explanation of the new IRA Charitable Rollover and implementation issues.
  
  
• See pages 263-269 of the Joint Committee on Taxation’s “Technical Explanation” (PDF) for an explanation of prior and current law, and examples of “qualified charitable distributions.”
  
  
• See Mark D. Hoffman’s “The Pension Protection Act of 2006: A Guide to Charitable IRA Rollovers” as posted on the Jewish Federation of Greater Washington Planned Giving Design Center’s website.
  
  
• See a detailed description of the new IRA Rollover from the Council for Advancement and Support of Education.
  
  
• See the Council on Foundation’s IRA Charitable Rollover Issue Paper and Analysis.
  
  

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Also see public policy background on the IRA Charitable Rollover.

Last updated: March 14, 2008