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New law allows
Tax-free charitable IRA distributions
Individuals now have the opportunity to give directly to charities from their Individual Retirement Accounts (IRA’s) without the hassle of paying income tax on it first – thanks to new legislation signed into law in August 2006.
Benefits for certain donors
Under the Pension Protection Act of 2006, individuals may make tax-free contributions to charity directly from their traditional and Roth IRA’s. Individuals may satisfy their required minimum distributions by gifting directly from the IRA to charity. Prior to this law, any amount taken from your IRA would need to be reported as taxable income, then you could take a charitable deduction for your giving but only up to 50% of your adjusted gross income.
This law benefits:
- Individuals who don’t or can’t itemize their taxes in order to claim charitable gift deductions.
- Donors who have reached their charitable deduction limit.
- Donors living in states that don’t allow charitable deductions.
- Donors who want to support charities.
Benefits for charities
The Pension Protection Act of 2006 encourages financial support of the good work done by charitable organizations. This long-awaited legislation is good news to charitable organizations who have been lobbying Congress for a decade to change the tax law. Charities anticipate the law will result in many additional donations.
The ability to make direct contributions to charities from an IRA is available for the 2006 and 2007 tax years and applies to outright lifetime transfers only.
In addition, IRA owners must be age 70 ½ or older in order to take advantage of the new law, and tax-free donations are capped at $100,000 a year per donor.
For more information on making a contribution through your IRA, contact Heidi Stoltzfus, CPA, at (717) 394-7107 or stoltzfushe@lancastermennonite.org.
Also, please read Perspectives Plus, a financial & charitable planning guide from LMS.
