Charitable IRA Rollover

On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes Act of 2015 into law, legislation that includes a permanent extension of the IRA charitable rollover.

The IRA charitable rollover, which allows taxpayers age 70 ½ or older to make tax-free charitable gifts of up to $100,000 per year directly from their Individual Retirement Accounts to eligible charities, including colleges, universities and independent schools, is now a permanent part of the U.S. tax code. If you or your spouse qualify based on age, read on to learn more about the benefits.

How does it work?

  • The donor requests his or her IRA plan administrator to transfer funds to a charitable organization. (Donor-advised funds, supporting organizations and private foundations, are not included under the provisions.)
  • The IRA administrator transfers funds directly to the charity.
  • This "qualified charitable distribution" is excluded from the donor's adjusted gross income.

Could you benefit?
Making gifts from IRA funds that would otherwise lead to increased taxes can be a wise choice for many. This is especially true for those who must take mandatory withdrawals each year. 

Example 1: Helen and Tom, ages 71 and 74, are retired and enjoy income from a number of sources, including amounts they are required to withdraw from their IRAs each year. Their IRA withdrawals are fully reportable as part of their adjusted gross income (AGI), resulting in higher taxes on their Social Security income and the phase-out of other benefits. This year, they decide to make charitable gifts directly from their IRA. These gifts are not reportable as part of their income, phase-outs and limits do not apply, but the gifts still count toward Helen and Tom’s mandatory distributions. Gifts from an IRA may also make it possible to enjoy tax benefits that would not ordinarily be available to those who do not itemize their deductions.

Example 2: Henry, age 73, lives comfortably on his retirement savings and Social Security. His home is paid for and he no longer itemizes his tax deductions. As a result, there are no tax savings from his charitable gifts. He is also required to take minimum distributions from his IRA each year and he must pay tax on those funds. This year, Henry decides to take advantage of the benefits of making his charitable gifts directly from his IRA. By making his gifts in this fashion, he bypasses tax on the amount given to charity, even though he does not itemize his deductions.

Everyone’s circumstances are different, and state as well as federal income, gift, and estate tax laws may affect your plans. The above overview of the IRA rollover provision is designed to provide a general understanding of the law and should not be construed as legal, accounting, tax, or other professional advice. We encourage you to check with your advisors about the best ways to take advantage of this giving opportunity.

Information provided by The Sharpe Group and CASE.

For more information:

Office of Institutional Advancement and Alumni Relations