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A Guide to IRA Charitable Rollovers. Emergency Economic Stabilization Act of 2008 With Case Studies. James E. Connell FAHP, CSA Connell & Associates Charitable Estate and Gift Planning Specialists. A Guide to IRA Charitable Rollovers. Effective for 2008 and 2009

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a guide to ira charitable rollovers

A Guide to IRA Charitable Rollovers

Emergency Economic Stabilization Act of 2008 With Case Studies

James E. Connell FAHP, CSA

Connell & Associates

Charitable Estate and Gift Planning Specialists

a guide to ira charitable rollovers2
A Guide to IRA Charitable Rollovers
  • Effective for 2008 and 2009
  • IRA account owners 70 ½ or older may make a direct transfer to charity up to $100,000 per year
  • Donor profiles
    • Convenience donor
    • Standard deduction

donor

    • Generous donor
    • Major donor
    • Social security

donor

a guide to ira charitable rollovers3
A Guide to IRA Charitable Rollovers
  • Signed by Bush on October 4, 2008
    • Allows for IRA rollovers to charity
      • Both regular IRA accounts and Roth IRA accounts are eligible
    • Charity must be eligible
    • Individual must be 70 ½ or older on the date of contribution
      • Qualified Charitable Distribution will qualify for the Required Minimum Distribution requirements of IRA
    • $100,000 limit
      • $200,000 from couple with separate accounts
    • 2008 and 2009 transfers only
    • Transfers from other pensions and profit sharing plans, i.e. Keogh, 401k, 403b, etc., are not allowed
      • Possible to rollover above accounts to IRA if plan and time permit
a guide to ira charitable rollovers5
A Guide to IRA Charitable Rollovers
  • Eligible charities
    • 501(c)3 public charities
    • 509(a)1 and section 170(b)(1)(A)
      • Field of interest funds
      • Restrictions on use of gifts permitted (i.e. scholarship funds or building funds)
    • Not Permitted
      • 509(a)(3) supporting organizations
        • Especially effects hospital foundations
      • Donor advised funds
      • Private foundations
a guide to ira charitable rollovers6
A Guide to IRA Charitable Rollovers
  • Permitted transfers/gifts

Qualified Charitable Distribution (QCD)

    • Outright gifts only
    • No charitable gift annuities
    • No charitable remainder unitrusts
    • No charitable remainder annuity trusts
    • No pooled life income funds
    • No “quid pro quo” gifts
      • No personal benefits
      • No special events
      • No athletic tickets
a guide to ira charitable rollovers7
A Guide to IRA Charitable Rollovers
  • Suggested procedures
    • Notify charity of potential gift
    • Instruct custodian/trustee of IRA on the proper form and if no form send a complete letter of instructions with payment/gift to the charity as a “third party payment”
    • Transfer will be mostly cash but in-kind transfers (i.e. securities) are permitted
    • Keep records of transfer and substantiation from charity
    • If appropriate, elect out of withholding
a guide to ira charitable rollovers8
A Guide to IRA Charitable Rollovers
  • Donor Profile – Convenience Donor
    • Most delay taking distributions until the last quarter of the year in order to grow the remaining funds tax free
    • If actively making charitable gifts may consider the benefits of taking them from their IRA account(s)
      • No inclusion in income
      • No income tax deduction
      • Qualifies for Minimum Required Distribution (RMD)
a guide to ira charitable rollovers9
A Guide to IRA Charitable Rollovers
  • Donor Profile – Non-Itemizers
    • May be donors with modest IRA account balances, but sufficient retirement income from personal investments and tax-exempt accounts
    • Taking MRD may not significantly increase their lifestyle
    • Do not have significant tax deductions
      • State and local income taxes
      • Interest expenses
      • Medical expenses
      • Charitable deductions
    • So the standard deduction applies (2008), over 65
      • Married/Joint - $11,950 one / $13,000 two
      • Single - $6,800
      • Head of household - $9,350
a guide to ira charitable rollovers10
A Guide to IRA Charitable Rollovers
  • Donor Profile – Generous or Major Donors
    • Most have large IRA accounts
    • May be giving at or above the 50% of AGI limit
    • May be subject to the 3% reduction rule if AGI exceeds $159,950 (2008)
    • May wish to make a large gift with immediate impact for a special project in 2008
    • Carry forward may or may not be a concern because of age, health or wealth
    • May have filled up their 30% limit with a carry forward and have no 50% assets to contribute
a guide to ira charitable rollovers11
A Guide to IRA Charitable Rollovers
  • Donor Profile – Social Security Donor
    • Social security is subject to two taxes when income reaches certain levels
    • A tax on 50% of SS income at the first level
    • A tax on 85% of SS income at the second level
    • Donors with income in excess of the second level may consider reducing their taxable income by making gifts from their IRA accounts thus reducing their taxable income limit
a guide to ira charitable rollovers12
A Guide to IRA Charitable Rollovers
  • Case example
    • $500,000 IRA account, with a $30,000 Required Minimum Distribution
      • $30,000 to charity
      • $10,000 to charity, $20,000 to owner
      • $100,000 to charity:

$30K to charity #1

$30K to charity #2

$30K to charity #3

$10K to charity #4

      • $100,000 to charity and $50,000 to owner
a guide to ira charitable rollovers13
A Guide to IRA Charitable Rollovers
  • Case Example
  • Carol in Florida, widow, husband was former DuPont employee, died under Hospice care, lives in a total care retirement facility, does not spend the income generated by her IRA retirement assets
    • Age 81, with $113,000 in IRA totally invested in Vanguard Windsor Fund
    • Received her $5,500 RMD in January and reinvested RMD into Vanguard Tax-Exempt Fund, has significant tax-free retirement income
    • Objective: Give total IRA account to Hospice
    • Plan: Gave $90,000 in November 2006
      • Give balance of account in January 2007
a guide to ira charitable rollovers14
A Guide to IRA Charitable Rollovers
  • IRA account with deductible and non-deductible contributions
  • IRA account value of $100,000 with $20,000 non-deductible contributions and $80,000 of deductible contributions and earnings, no other IRA, normally withdrawals follow the pro-rata rules
    • $80K is distributed as a QCD
    • Under the provisions of the regulations the QCD is considered coming from income first up to the total amount that would be includable in gross income
    • All $80K is exempt from taxation
    • Balance of $20K is not subject to taxation and can be withdrawn income tax-free
a guide to ira charitable rollovers15
A Guide to IRA Charitable Rollovers
  • Other Concerns
    • Conversions of other retirement accounts to IRA accounts
    • Custodian or trustee reporting on 1099R
    • Custodian or trustee minimum QCD levels
    • State income tax impact for charitable gifts
    • State income tax impact for QCD
    • Electing out of withholding for MRD
    • Charity substantiation for $250 or over following the rules of Tax Revenue Section 1.170A-13f, contemporaneous written acknowledgement