IRA Makes Gift of a Lifetime
Now it's easier than ever to make the gift of a lifetime.
IRAs can qualify for tax-free charitable distributions.
Community Foundation of Acadiana (CFA) can help turn your individual retirement accounts (IRAs) into tax-saving charitable gifts. Extended tax benefits allow more people to experience the joy of giving during their lifetimes. You can give more for less.
Thanks to the new legislation, American seniors can make the gift of a lifetime by giving their IRAs to charity without federal tax penalty. So your retirement funds can go further than ever before. <more>
CFA can help you connect to the causes you care about most. You can set up a charitable fund in your name or make an unrestricted gift. Giving is one of life's pleasures; we can help you enjoy it today. <more>
There is so much more we'd like you to know.
"We saved very carefully for so many years. In fact, we wound up with more than we needed during our retirement," said Anna Henderson. "We had even set aside assets for our children - enough to give them a nice inheritance when we pass on." Instead of leaving their children a reduced percentage of their retirement assets due to estate and heirs' income taxes, the Hendersons decided to transfer 100% of these funds to their community foundation. The community foundation received their gift, tax free, and helped them establish the Henderson Family Fund, a Field of Interest Fund. "It feels good to make this gift during our lifetime," said Stephen. "We enjoy seeing the difference our gift is making to some key health issues in our community."
For years, estate planners have recommended that retirement assets may be the most tax-effective asset in larger estates to distribute to charity. These assets are not only vulnerable to heavy taxation as part of an estate but also can be taxed again as income in respect to a decedent on the tax returns of heirs.
Until recent legislation, there was a disincentive for retirees to give IRAs to charity during their lifetimes because withdrawals from IRAs were subject to income tax—even those given to charity.
Tax law extension. Annually, retirement assets may become a preferred
charitable gift for seniors. IRA distributions to charity can now again receive
special tax advantages. Americans age 70½ and up can make tax-free IRA
contributions to public charities such as Community Foundation of Acadiana.
Frequently Asked Questions
Carla Dunn has a passion for human services. As a retiree, she has given her time generously to several local organizations - delivering meals to the home-bound, leading new-member orientation at her church and answering calls for help at a crisis hotline. "I really don't need my IRA for living expenses - plus, it's taxed when I receive the required distributions," said Carla. "Now, my IRA can be transferred to the community foundation to target the causes most dear to my heart. I'm delighted I can give 100% today and enjoy seeing the good works my gift makes possible during my lifetime." Carla transferred $100,000 to the community foundation and established the Charles and Carla Dunn Human Services Fund, a Field of Interest Fund named for Carla and her late husband. Because her assets were transferred directly to charity, they were not included in Carla's income for the year, and not taxed, leaving the full amount available to fulfill Carla's charitable intentions.
By giving through CFA, you can use your gift to meet ever-changing community needs including future needs that often cannot be anticipated at the time your gift is made. Your gift can target the causes and programs you care about most.
Community Foundation of Acadiana understands our community's most pressing issues and can help you establish a fund to make an impact in areas of need or opportunity that are important to you. Here are three great ways to turn your IRA into community good:
Community Foundation of Acadiana Meeting ever-changing community needs.
Address a broad range of current and future needs. Hometown Community Foundation evaluates all aspects of community well-being arts and culture, community development, education, environment, health and human services and awards strategic grants to high-impact projects and programs.
Field of Interest Fund Connecting personal values to high-impact opportunities.
Target gifts to the cause most important to you: community development, health and human services, education, arts and culture, and more. CFA awards grants to community organizations and programs addressing your special interest area.
Designated Fund Helping local organizations sustain and grow.
Support the good work of a specific nonprofit organization—a senior center, museum or any qualifying nonprofit charitable organization—by creating a specially Designated Fund. CFA will invest your gift for long-term growth and issue grants to your favorite nonprofit on a regular basis.
After decades of deliberate saving, some of today's retirees have more money in their IRAs than they need for daily living expenses and long-term care. For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of non-spousal beneficiaries; heirs may receive less than 50 percent of IRA assets passed on to them through estates.
Instead, IRA holders may choose to leave their IRAs to qualified charitable organizations choosing charity over taxes.
Which donors stand to benefit most from giving their IRAs to charity?Because charitable IRA transfers are not included in taxable income and not available for itemized charitable deductions, these special rules may benefit many different types of individuals:
Generous donors: When making a major gift, some taxpayers may give more to charity than they can deduct that year. Donors cannot deduct more than 50 percent of their income for gifts of cash to public charities (30 percent, if giving to private foundations). Although amounts over 50 percent can be carried forward and deducted in future years, taxpayers will face an immediate tax bill and may lose some of the benefit of the deduction if they die before the gift has been fully deducted. Donors who consistently give above the limit will not be able to take advantage of the carry forward provisions.
- Non-itemizers: Donors who regularly give a portion of their income to charity are not able to enjoy a tax break from the contribution because the standard deduction is still greater than the total of all itemized deductions. This may be especially true if state and local income taxes are low.
- Financially comfortable: Individuals or couples who distribute the minimum from their IRA and have other forms of income to pay living expenses may find that transferring their minimum distributions to the community foundation helps fulfill personal charitable goals, tax-free.
In the past, how did the tax law treat charitable gifts made from IRAs?
Prior to 2006, IRA holders faced a disincentive for giving retirement assets to charity during their lifetimes because all withdrawals from traditional IRAs were subject to income tax. Thanks to the renewed tax provision, retirees will be able to give far more support without being penalized, doing so during their lifetimes and seeing their gifts benefit their communities.
In the past, when a donor of any age withdrew IRA funds to make a charitable gift, he or she was liable to pay income tax on the withdrawal, offset to varying degrees by a charitable deduction for the gift.
As a consequence of this unfavorable tax treatment, very few individuals donated IRA funds to charity during their lifetimes.
How has the tax law changed?
The current law permits individuals to transfer up to
$100,000 from individual retirement accounts directly to a qualifying charity
without recognizing the assets transferred as income for federal tax purposes. A
donor who has reached age 70½ is now allowed to exclude from his or her income
tax calculations certain IRA withdrawals. In most circumstances, these
charitable contributions are not tax deductible unless the retirement accounts
were funded with after-tax dollars.
This provision is permanent.
What are the advantages of this renewed law?
The tax benefits now available to American seniors will
encourage new contributions from individuals who will no longer have to pay tax
on a charitable gift of IRA funds. When given through a community foundation,
these contributions can support all aspects of community well-being: arts and
culture, economic development, education, environment, health and human
services, neighborhood revitalization and more.
Now it is easier than ever for more people to enjoy the
experience of making the tax-free gift of
a lifetime using their excess retirement assets.
What if a donor
contributes more than $100,000 from an IRA?
Because the amount that the donor is
able to exclude from income is limited to $100,000 under the act, the remaining
amount would be recognized as income. Within a married couple, each person can
transfer $100,000 from his or her account.
Donors may choose to contribute
additional amounts to charity; however, the extent to which additional amounts
can be deducted from their income will be determined following general rules of
itemized deductions where the charitable percentage limitations and itemized deduction
reduction are factors.
What is the itemized
Higher income taxpayers must reduce
their itemized deductions by the lesser of 3 percent of the amount by which
their income exceeds a certain amount – $250,000
for individuals, $275,000 for heads of households and $300,000 for married
couples filing jointly.
These taxpayers can lose up to 80
percent of the value of their deductions because most itemized deductions have
to be reduced by 3 percent of the amount by which the taxpayer’s income exceeds
a certain number, or 80 percent of the taxpayer’s itemized deductions.
Example: A married couple filing
jointly has $500,000 in adjusted gross income (AGI) and because their AGI
exceeds the $305,050 threshold, the 3 percent reduction applies to this
couple’s itemized deductions.
Excess of couple’s AGI over $305,500 =
3% reduction x 3%
Reduction of itemized deductions
The couple’s itemized deductions will
be reduced by the lesser of $5,848 or 80% of the itemized deductions.
Does a donor also
receive a charitable deduction when he or she transfers assets to a charity
under this provision?
No. The benefit under this provision is
that the individual does not realize the amount contributed directly from the
IRA to a qualifying charity. Because a donor does not include the amount in his
or her gross income, the individual may not take a charitable contribution
deduction for the contribution. To do so would allow a donor to receive a
double benefit from the contribution. For this reason, charitable contribution
deductions are explicitly prohibited.
Shortly after an individual reaches age
70½, he or she is generally required to receive distributions from his or her
traditional IRA. Distributions from an IRA to a charity will receive the same
treatment as distributions to the individual taxpayer for the purposes of
minimum required distributions.
Are there any IRA
transfers to the community foundation that do not qualify for preferred tax
Yes. Transfers to Supporting
Organizations and Donor Advised Funds do not qualify. In addition, split
interest gifts, such as Charitable Annuities, Charitable Lead Trusts and Charitable
Remainder Trusts, do not qualify. Further, an individual may not receive a
benefit in return for an IRA distribution.
Because such transfers do not count as
qualified distributions under these special rules, the donor will have to first
recognize those distributions as income. The donor’s charitable deduction must
then be calculated as a regular itemized deduction.
How can an IRA gift be made?
IRAs are typically held by a financial
service or trust company. These custodians will likely provide a form that
could be used to transfer the IRA directly to charity, with no tax incurred.
The information provided here is based on analysis of recent
legislation. Every effort has been made to ensure accuracy of the answers to
these questions. However, due to the complexity of the tax law and the fact
that many of these provisions introduce issues that are new to the Internal
Revenue Code, this information may be subject to change. It is not a substitute
for expert legal, tax or other professional counsel and we strongly encourage
donors to work with their professional advisors to determine the impact of this
legislation on their particular situations. This information may not be relied
upon for the purposes of avoiding any penalties that may be imposed under the
Internal Revenue Code.