IRA Charitable Rollover Extension: What You (and Your Donors) Need to Know Now

By now you are aware that the IRA Charitable Rollover has been extended through the end of 2013.

This post explains the details of the law (yes, there are some special provisions this time that make it more complex).

The IRA Charitable Rollover has proven a popular way for donors to support their favorite causes, for the main reason that it enables donors to make a gift to charity from their IRA and not include the amount so distributed in their taxable income. Beyond making it easier to make gifts from their IRA, this can advantageous to donors from a tax standpoint if:

  • They do not itemize deductions,
  • They pay state income tax but cannot take charitable deductions on the state return,
  • They would not be able to deduct all of their charitable contributions because of deduction limitations, or
  • An increase in taxable income may negatively impact their ability to use other deductions.

The extension keeps in place all of the previous requirements in order for the transfer to qualify:

  • Donor must be at least 70 ½ years of age when the gift is made,
  • Transfer must be made directly from the IRA administrator to the charity,
  • The gifts from the IRA cannot exceed $100,000 per person ($200,000 for a couple) in a given year,
  • They can only be outright gifts (can’t fund a CGA or charitable trust),
  • No goods and services can be given in exchange, and
  • Cannot be made to a donor advised fund or a supporting organization.

The law is retroactive and includes gifts in 2012 as well as 2013. This helps donors that made qualifying IRA distributions in 2012 in the hope that the provision would be extended. For these donors you need to make sure that they get a receipt that has the required information for IRA Charitable Rollover gifts. If your donors did not make a qualifying gift in 2012 but would still like to, they can do so in one of two time-limited ways:

  1. Make a 2012 IRA Rollover in January 2013. Your donor can do a rollover gift in January and “elect” to have this be considered made in 2012. There is a short window of opportunity for this – it must be made by the end of January 2013. How the election is to be made will be specified by the Secretary of the Treasury later this year (presumably before April 15!).

  2. Convert a December 2012 IRA distribution into a 2012 IRA Charitable Rollover gift. Some donors waited to take their required minimum distributions until December, hoping that the IRA Rollover would be extended for 2012. If that is the case, and the distribution meets all of the IRA Rollover criteria except for the direct transfer to charity requirement, your donors can now claim it as a charitable rollover gift in 2012, to the extent that they now transfer the distribution in cash to your organization.

This transfer from their bank account to your organization must occur by January 31, 2013. If your donor took a distribution in December and made a gift to your organization in December these two can be tied together, as long as the charitable distribution occurred AFTER the withdrawal from the IRA.

It is not clear at this time what the IRS will require from the taxpayer (donor) to document this gift arrangement. We will provide you with the latest news on this aspect as it develops in future blog posts.

This is great news for the non-profit community and its donors, and a good way to start the New Year!