Tax break for contributions
to St. Stephen from IRA’s.
Consider this change in the law before making
your 2007 minimum distribution from a Traditional
IRA or any additional charitable gifts:
The Pension Protection Act of 2006 permits those of us
past 70-1/2 years of age to convey tax-free distributions directly from
our IRA’s to St. Stephen or other qualified 501 (c) 3 charitable
organizations such as colleges, museums, symphonies, etc. This change
permits gifts to St. Stephen in year 2007 only to be drawn from your
IRA without incurring taxable income on the withdrawal from the IRA.
Such gifts can even be credited against your Required Minimum Distribution
and still be non-taxable.
HOW to benefit from this temporary change in the law
Make charitable gifts between now and December 31 directly
from your Traditional IRA, saving taxes now that otherwise would be
payable when you drew down any IRA distribution.
At least apply the amount of your Required Minimum Distribution to eligible
charitable gifts. That RMD will be larger in 2007 than it was in 2006.
If through this process you complete your planned gifts to St. Stephen
for the year, consider pre-paying before year-end part or all of your
gifts for 2008. Extension of the program beyond December 31, 2007 requires
action by Congress.
WHO can benefit from this temporary change in the law
If you do NOT itemize deductions in preparing your Form
1040 Individual Tax Return, you obtain a tax reduction on the amount
transferred to St. Stephen and other charitable organizations, and still
enjoy your normal Standard Deduction.
If you DO itemize deductions, contributions made through a transfer
from your IRA may not be counted toward the contribution deduction on
Form 1040 Schedule A (because you have received exemption from counting
that amount as income). However, other benefits derive from keeping
out of your Adjusted Gross Income the amount you otherwise would have
been obliged to take or would have elected to take as a cash IRA distribution:
The rules are these:
- Person making the gift must be at least 70-1/2 years old at the
time of the gift.
- The transfer to St. Stephen or an other charity must be handled
directly between the IRA trustee or administrator and the recipient
of the charitable gift.
- The gift must be outright without side benefits to the donor
- Life-income gifts such as charitable gift annuities are not eligible
- Gifts to donor-advised funds (which permit the donor to choose
at a later date the charities to be benefited) are not eligible
- The exemption from customary taxation of the distribution from
the IRA applies as well to Required Minimum Distributions and to distributions
from Non-Deductible portions of Traditional IRA’s (the gift
is considered to come from accumulated earnings on the non-deductible
portion; these would otherwise be taxable in a future year when distributed).
- The limit on such gifts per individual taxpayer for tax year 2007
is $100,000
- All such non-taxable charitable distributions from the IRA in one
tax year are treated as one distribution by the IRS for purposes of
administrative simplicity
- To qualify for the tax years 2007, the gift distribution process
must be accomplished by December 31. Your IRA trustee or administrator
may have an earlier deadline to permit it to comply on a timely basis;
check with that firm now. It may have a special form to complete or
require a letter with certain details and a signature guarantee.
If you have any questions feel free to call Ward Bourn at 221-0908.
