IRA Charitable Rollover

Background
The Pension Protection Act of 2006 created the IRA Charitable Rollover, allowing owners aged 70½ or older of traditional and Roth IRAs the ability to distribute directly, or “rollover,” to certain public charities (including Clarkson) up to $100,000 per year without the distribution being included as taxable income, but allowing it to count towards the annual required minimum distribution (RMD). This is also commonly known as a “QCD,” a “Qualified Charitable Distribution.”

The Protecting Americans From Tax Hikes Act of 2015 (PATH) extended and made permanent the IRA Charitable Rollover.

For information on how to make an IRA Charitable Rollover gift to Clarkson University, please visit these instructions.

New Provisions of Secure Act effective January 1, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 introduced the following changes:

  • Extended period for traditional IRA contributions. Individuals may now make tax-deductible contributions to a traditional IRA after the age of 70½ as long as they are still earning income.
  • Delayed required minimum distributions. Individuals who reach the age of 70½ in or after the year 2020 will not be required to make minimum distributions from their traditional IRAs and ERISA retirement plans until the age of 72. Distribution rules for those who reached age 70½ in or before 2019 do not change.
  • Stretch-IRAs virtually eliminated.  The SECURE Act requires most non-spouse IRA and retirement plan beneficiaries to drain inherited accounts within 10 years after the account owner’s death. Before, RMD rules allowed non-spouse beneficiaries to drain an inherited IRA over a person’s IRS-defined life expectancy.  The Secure Act’s RMD change is generally effective for RMDs taken from accounts whose owners die after 2019. The RMD rules for accounts inherited from owners who died before 2020 are unchanged.

10-Year Rule Specifics. When it applies, the new 10-year rule generally applies regardless of whether the account owner dies before or after his or her RMD required beginning date (RBD). The RMD rules do not kick in until age 72 for account owners who attain age 70 1/2 after 2019. So, the RBD for those folks will be April 1 of the year following the year they attain age 72.

Following the death of an eligible designated beneficiary, the account balance must be distributed within 10 years.

When an account owner’s child reaches the age of majority under applicable state law, the account balance must be distributed within 10 years after that date.

Note: Since PATH extended and made permanent previous law, charitable rollovers are currently not allowed to fund gift-with-income plans such as gift annuities and charitable trusts.

IRA Charitable Rollover Qualifications
Based on the Pension Protection Act of 2006:

  • The IRA owner must be at least 70½ years old at the time a transfer is made to charity
  • The transfer must be made from the IRA directly to a qualified charity
  • The combined value of all transfers made (to one or more charities) cannot exceed $100,000 per taxpayer per taxable year
  • A qualified charity is an organization described in section 170(b)(1)(A), other than organizations described in section 509(a)(3)
  • Transfers are not included in adjusted gross income for federal income tax purposes
  • Transfers to charity may count as part of your annual mandatory IRA withdrawal amount
  • IRA transfers to charity are not taken into account in determining the deduction eligibility of other charitable contributions

Additional Clarifications

The IRS issued these clarifications in 2007:

  • Rollover distributions can satisfy pledges
  • A person over age 70½ who is the beneficiary of an inherited IRA may make charitable transfers from that IRA
  • Charitable transfers may be made from a SEP or a SIMPLE IRA if no employer contributions were made to the IRA in the year of the transfer
  • A qualified charitable distribution is not subject to withholding of income taxes
  • The maximum total qualified charitable distribution amount each year is $100,000 per person, not per household, or per IRA account.
  • The IRA administrator may issue a check payable to the charity and present it to the donor to deliver to the charity. The gift date is the date the donor mails the check via the USPS or hand-delivers it to the charity

Transfers cannot be made from 401(k) plans, but it appears allowable under certain circumstances to move a portion of the 401(k) into a Rollover IRA and then make a qualified charitable distribution from there.

Cautions

  • The transfer must be made from your IRA directly to charity, otherwise you must declare the distribution as income
  • The IRA must be a traditional IRA or a Roth IRA; it cannot be an employer sponsored plan such as a SIMPLE IRA, a 401(k) or 403(b) plan or a simplified employment pension (SEP) plan
  • Distributions from Roth IRAs are not taxed to the account owner, so it is still wise to determine if some asset other than the Roth IRA is best to give to charity
  • Transfers are not deductible as charitable gifts
  • You may receive no benefit from the charity for your transfer (e.g. tickets, dinners, etc.)
  • Transfers cannot be made to gift annuities, charitable trusts or pooled life income funds
  • Transfers cannot be made to donor advised funds, private foundations or “supporting organizations”
  • The donor is responsible for and must obtain documentation for the transfer as he/she would substantiate any gift to charity
  • Transfers are made from otherwise taxable income first. Non-taxable income in your IRA may not be considered a qualified transfer and should be handled differently
  • In some states (check with your advisor), IRA rollovers may be includable in income for state and local tax purposes and may not earn an offsetting charitable deduction, depending on state and local law
  • In some states (check with your advisor), IRA withdrawals up to a certain amount may not be includable for state income tax purposes, thus negating some benefit of an IRA charitable rollover at the state level.

Who might use this opportunity?

If the majority of your assets are in IRAs, it may be easier to make a direct transfer rather than reporting a withdrawal on your tax return

  • If you do not itemize, you may be able to make IRA gifts without increasing (and maybe even decrease) your adjusted gross income
  • If you already give up to 50% of your adjusted gross income, this legislation may allow you to, in effect, exceed that limit
  • If you have accrued a “carryover” of charitable deductions from past tax years, this legislation may allow you to make gifts without impacting those carryover amounts
  • If your level of income phases-out certain deductions, a rollover may allow you to make gifts without increasing (and maybe even decrease) your adjusted gross income
  • It may simply be easier to make a transfer from your IRA to charity and not need to worry about the income tax implications
  • If you’ve been thinking about making a larger gift, this may provide a tax-advantaged time-frame for doing it
  • In some states (check with your advisor) a charitable deduction is not allowed for state tax purposes.  A rollover that does not increase your reportable income may result in savings on state taxes as well

IRA Rollover gifts are eligible to count in Clarkson fundraising campaigns, in your next anniversary reunion and towards annual Roundtable recognition.

Everyone’s financial position is unique, so it is important to consult your tax counsel and plan administrator before making gifts from your IRA.

Making a gift to Clarkson

IRA charitable rollovers must be requested by the donor directly to his/her IRA administrator. The process is not standardized across the industry, and each company will set its own policies and procedures, so you may wish to contact your administrator early in the process.  The proper name to use in a transfer request is “Clarkson University,” and the federal ID number is 15-0543659. You may wish to provide this mailing address

Annie Clarkson Society
Clarkson University
Box 5522, Woodstock Lodge
Potsdam, NY 13699

Most IRA rollover gifts come to Clarkson as a check from an IRA administrator.  Oftentimes these checks do not identify the donor or the fact that it is a rollover gift.  It is helpful if you contact Clarkson at the time you authorize your rollover gift.

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This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning
your gift.