American Taxpayer Relief Act of 2012 (ATRA) extends IRA Charitable Rollover
Since 2006, IRA owners age 70½ and older have been able to make qualified charitable distributions (QCD) up to $100,000 each year from an IRA directly to a nonprofit organization.
A Qualified Charitable Distribution provides several benefits to the donor:
▪ The QCD is not reported as income to the donor, thus reducing the donor’s adjusted gross income (AGI). This is especially important for donors that may face phase-outs of their deductions based on AGI. In addition, the donor in a state like Connecticut can save on state income taxes, since the state income tax is based on the Federal AGI.
▪ The QCD counts toward and can fully meet the donor’s required minimum distribution (RMD) requirement for their IRA.
▪ The QCD provides an opportunity to transfer a fully taxable asset to a nonprofit and completely avoid the income tax. Please note that since the QCD is excluded from taxable income, the donor will NOT receive a tax deduction for the transferred amount.
The American Taxpayer Relief Act 2012( ATRA) retroactively extends the IRA Charitable Rollover back to January 1, 2012 through to December 31, 2013. This provides donors with several gift opportunities:
First, some individuals in 2012 made QCDs directly from their IRA custodian to charities hoping that the law would be retroactive. ATRA was retroactive, so these QCDs will qualify.
Second, if an individual took a distribution from their IRA during December 2012, they can make a qualifying cash gift to a nonprofit organization any time between the date of their withdrawal and January 31, 2013 and treat the withdrawal as a QCD for 2012. These cash gifts must satisfy all of the rules for a QCD except for the requirement that the distribution be made directly from the IRA to the nonprofit.
For example, a gentleman withdrew $10,000 from his IRA on December 12, 2012. He wrote a $200 check to his church on December 2, 9, 16, 23 and 30. He also wrote a $100 check to the local Food Bank on December 14 and a $300 check to the local Homeless Shelter on December 4. Assuming the individual’s gifts to charity qualify for all of the other rules of a QCD, he may elect to treat all of these gifts to charity as a QCD except for the gifts before client’s December 12 withdrawal (December 2 and 9 checks to the church and
December 4 check to the Homeless Shelter). He may also choose to make additional donations to charity before January 31, 2013 in order to treat more of his December 2012 IRA withdrawal as a 2012 QCD.
Third, individuals may elect that a QCD made during January 2013 can be treated as being made on December 31, 2012. In addition, this means a donor could double their gift to a nonprofit by making a QCD up to $200,000 during January 2013 and elect to have half treated as a 2012 QCD and half as a 2013 QCD.
Qualified Charitable Distribution (QCD) Rule Refresher:
The basic rules for a Qualified Charitable Distribution (QCD) are:
The donor must be age 70½ on or before the date of the rollover;
The charity must be a public charity but not a donor-advised fund or supporting organization;
The distribution must be a direct IRA-to-charity transfer;
The entire distribution must qualify as a deductible contribution were it not for this provision;
Rollovers from SEPs and SIMPLEs do not qualify; and
The exclusion from gross income only applies to distribution amounts that would be includible in gross income were it not for this provision.