New IRA Law Favors Charitable Gifts

Greetings,

President Obama has signed the American Taxpayer Relief Act of 2012.  The law reinstates a provision, known as the IRA Charitable Rollover, which had expired on December 31, 2011 and which provides significant charitable giving incentives.

The new law permits individuals who are 70 ½ or older to make tax-free transfers of up to $100,000 annually from a traditional or Roth IRA directly to charity.  The law had expired on December 31, 2011. The new law extends the IRA Charitable Rollover for all of 2013. The new law will expire on December 31, 2013.

I have listed below the requirements of the IRA Rollover Law.

Specifically, the law allows individuals age 70 ½ and older to exclude from taxable income specified distributions from a traditional or Roth Individual Retirement Account to a public charity like Duke.  To qualify, the conditions described below must be met.

  • The donor must be 70 ½ and older and own a traditional or Roth IRA. Other retirement plans do not qualify.
  • The distribution must be made directly by the custodian of the IRA to the public charity.
  • The distribution cannot exceed $100,000 per donor per year for each of 2013. The law will expire on December 31, 2013.
  • The distribution must be an outright distribution to the public charity (i.e., distributions to establish charitable remainder trusts or charitable gift annuities or to a public charity’s pooled income fund do not qualify, and distributions to private foundations and donor advised funds do not qualify).
  • The donor must receive a “substantiation receipt” from the charity for the gift.

Although the law does not allow you to claim an income tax charitable deduction for the gift to the charity, it does permit you to exclude the distribution from your taxable income.

Under prior law, an individual who withdrew funds from an IRA and then donated them to charity had to include the funds as taxable income on his or her income tax return and then claim a charitable deduction for the gift.  In theory, the result was a “wash,” but because of the percentage limitation on charitable gifts and other limitations on deductions, many individuals found it disadvantageous to make lifetime charitable gifts from their IRAs.  The law eliminates these obstacles.

As stated above, the law requires you to direct the custodian of your IRA to make the distribution directly to the public charity.  If you qualify for the benefits of the law and want to make a distribution to Duke University School of Medicine from your IRA, click here for a sample letter to use.  It directs the custodian of your IRA to make a distribution to Duke.

After you have mailed the original letter to the custodian of your IRA, please mail, fax, or email a copy of this letter to me so that I can arrange for you to receive a “substantiation receipt” for the gift from Duke as required by the law.  My fax number is 919-385-3103, and my email address is tynan002@mc.duke.edu.

Duke and its employees cannot offer legal, tax, or financial advice.  I encourage you to review the law with your professional advisors to determine its applicability to you.

I want to thank you again for your continuing interest and support.  Should you have any questions, please call me at 919-385-3114, or e-mail me at tynan002@mc.duke.edu.

Joseph W. Tynan, J.D.
Executive Director of Gift and Endowment Planning
Duke Medicine
512 S. Mangum Street, Suite 400
Durham, NC 27701-3973