According to William S. Crane, of Crane, Tonelli, Rosenberg & Co. LLP, the Leadership 100 accounting firm, the rule allowing tax-free treatment of IRA distributions donated to charity, which applied to 2006 and 2007, is extended to 2008 and 2009. As originally stated: “Pursuant to the Pension Protection Act of 2006, a taxpayer who is age 70½ or older may exclude from his gross income up to $100,000 transferred directly from his IRA to certain qualified charities. The rolled-over amount (up to $100,000) will also count toward satisfying the taxpayer’s minimum required distribution from the IRA.”
Under the 2008 Extenders Act law, the tax-free qualified charitable deduction rules are extended to apply to distributions made in tax years beginning after December 31, 2007 and before January 1, 2010 (in addition to any qualified charitable distributions taxpayers may have made in 2006 and 2007).
Because Leadership 100 is an organization described in section 170(b) (1) (A) of the Internal Revenue Code, it remains a qualified charity for these purposes.
However, Crane has indicated that certain restrictions apply:
- The plan 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.
- You may receive no benefit from the charity for your transfer (e.g. tickets, dinners, etc.).
- You are responsible for and must obtain documentation for the transfer as you would substantiate any other gift to charity.
- It is still unclear how (and if) various IRA administrators will implement the opportunity, e.g. charging fees for transfers, setting minimum transfer amounts or maximum number of transfers per year, defining the process necessary to make transfers and establishing the eligibility of charities to receive transfers.
Proviso: Some states follow federal law and others do not. New Jersey announced on November 2, 2006 that it will not follow federal law changes regarding this exclusion of $100,000 IRA distributions to charities. That means that for New Jersey, distributions will be taxable for now. Also, there is no pending legislation to change that.