IRA Charitable Rollover – A powerful incentive for giving

New Pension Law Also Provides for Charity
Provision Allows for Tax-free Charitable Transfers from IRAs

Walla Walla, WA - Since 1974, millions of Americans have saved billions of pre-tax dollars in Individual Retirement Accounts (IRAs). Thanks to continued savings and investment returns, an estimated $3.6 trillion is currently invested in IRAs, and the total continues to grow. On Thursday, August 16, 2006, a federal law was enacted allowing IRA owners to share the wealth of their retirement savings by giving directly to charity-without first counting it as income and paying income tax.

The new law could be a boon to local philanthropy.

"This is a wonderful win-win-for people who would rather give to charity than pay taxes-and the nonprofit organizations they choose to support," said Lawson Knight, Executive Director of the Blue Mountain Community Foundation.

Thanks to decades of deliberate saving and favorable investment returns, a substantial share of today's retirees has more money in their IRAs than they'll ever need. Many have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which sharply reduces the value of the gift. Others have asked about designating their children as beneficiaries, but that may draw additional tax consequences.

"For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries," Knight said. "Experts estimate heirs will receive less than 25% of most IRA assets that pass through estates."

A provision in the new federal Pension Protection Act of 2006, signed by President Bush today, creates a new option: transferring IRA assets directly to charity. By going directly to charity, the money is not included in the IRA owner's income and-most importantly-is not taxed, preserving the full amount for charitable purposes. Further, direct transfers satisfy required minimum distribution, commonly known as RMD, regulations that require IRA owner's over 70 ½ to make annual withdrawals. The law covers all gifts made this year and next.

In 2006 and 2007, holders of traditional and Roth IRAs who are at least 70 ½ years old by the date of contribution can make direct charitable transfers up to $100,000 per year. As a qualified public charity, Blue Mountain Community Foundation can help donors execute the transfers and choose from several charitable fund options for their gift. Donor Advised Funds do not qualify for tax-free IRA transfers.

"This really is a limited-time offer: the window is open now, but it will close in 2007 unless Congress extends it," said Knight. "For anyone interested in establishing a permanent legacy in this community, this is the opportunity of a lifetime to make the gift of a lifetime."

Since its inception in 1984, the Foundation continues to enhance and improve the quality of life in the Walla Walla and Touchet Valleys and up in the Blue Mountain foothills. It has grown to nearly 170 funds directed to benefit Blue Mountain area communities, granting in excess of $1,000,000 per year.



Download technical details from the Council on Foundations