publications full of ideas
Qualified Charitable Distributions from IRAs Extended for 2008 and 2009

11.21.2008

On October 3, 2008 the Emergency Economic Stabilization Act of 2008 (the "Emergency Act") was signed into law. Better known as the "Bailout Bill," the Emergency Act was signed in large part in response to the mortgage and banking crisis facing our U.S. economy. However, amidst the pages and pages of bailout provisions was a major benefit for charitable organizations and philanthropic Americans age 70 ½ or older.

Under IRS retirement plan rules, in order to avoid using an IRA to shelter tax deferred growth indefinitely, taxpayers must begin taking required minimum distributions (RMD) from their IRAs at age 70 ½. When these minimum distributions are made, taxpayers incur ordinary income tax liability on the taxable portion of these RMDs. In 2006, Congress enacted the Pension Protection Act which allowed an individual age 70 ½ or older to transfer up to $100,000 of the taxable portion of his or her IRA directly to a charity. This tax provision was appealing to older taxpayers as the transfer counted as a distribution for one's RMD purposes, but the distribution would not be included in the individual's gross income and therefore not subject to any income tax. Three requirements were needed to qualify for this qualified charitable distribution (QCD). First, the QCD was limited to individuals age 70 ½ or older; second, only qualifying 501(c)(3) charities were allowed to be recipients; and third, such transfers were only allowed for 2006 and 2007. This arrangement served as an excellent vehicle for qualifying individuals to benefit charitable causes while avoiding the potential ordinary income tax burden associated with taking a RMD.

The great charitable benefit provided by the recent "Bailout Bill" is that the ability to make the above mentioned annual charitable transfers of up to $100,000 has been extended to include transfers made from one's IRA in 2008 and 2009. Thus, donors age 70 ½ or older can now make charitable contributions of up to $100,000 from their IRAs, including even inherited IRAs, during 2008 and 2009, without the potential income tax repercussions associated with taking RMDs. This tax provision is a win-win for both donors and their charitable causes as the donors can avoid ordinary income taxes on IRA distributions to charities and charities can receive larger donations as a result. For those individuals who are not in need of some of their IRA assets for retirement or personal use, the extension of QCDs from IRAs provided by the Emergency Act provides an excellent tax planning opportunity for 2008 and 2009.

Craig Dalton, an attorney no longer with Poyner Spruill, was the original author of this article.

related information


follow us on twitter