Wednesday, August 16, 2006

Charitable IRA Rollovers are here

A new tax benefit for seniors is tucked away in the recent pension legislation, notes Registered Rep magazine. Direct transfers of up to $100,000 from an IRA to a charity will not be included in income, but only if done after an individual reaches age 70 1/2 (not in that tax year, after that date, so be careful). The article notes the benefits for the generous affluent seniors--they completely duck the percentage limit on the charitable income tax deduction, and they also don't lose tax benefits that are phased out as income rises, generally in the six-figure area.

Not mentioned but more important to those of more modest means, those who do not itemize will now participate in the tax benefit when they tap an IRA to make charitable gifts. The old rule would have required taking a fully taxable withdrawal from the IRA followed by no charitable deduction for those using the standard deduction. The new rule better recognizes their generosity.

The allows but does not require IRA trustees to be cooperative with this initiative. Some concern has been expressed about whether it makes sense to reprogram the recordkeeping computers to accommodate charitable gifts, especially given the very short term nature of this experiment. The charitable IRA rollover expires in just 16 1/2 months. (Was that needed to keep the revenue estimates in balance? Or were the Congressmen just not confident that this is a really good idea?)

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