Provision Permits Tax-free Charitable Transfers from IRAs

YARMOUTHPORT – On December 18, Congress passed the PATH Act, which renews and makes permanent the Charitable IRA provision of 2006, making it easier for Americans to give to causes they care about. This provision has the power to help local charities strengthen their communities by allowing individuals to roll over up to $100,000 annually from an Individual Retirement Account (IRA) to charity without being federally taxed.

Millions of Americans continue to save pre-tax dollars in their IRAs. The law allows taxpayers 70 ½ and older to share their wealth by giving retirement savings directly to charity—and bypassing income tax.  This law is important to local charities operating as agents of philanthropy in order to continue to build community and improve social service programs that benefit people every day.

“This is an exciting opportunity for people to avoid a tax liability by making an impactful charitable gift to the nonprofit organization of their choice,” said Kristin O’Malley, Executive Director of The Cape Cod Foundation.

Thanks to decades of deliberate saving, some of today’s retirees have more money in their IRAs than they need for daily living expenses and long-term care. Charitable individuals and couples have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which reduces the value of the gift. Others are concerned about designating their children as IRA beneficiaries, since that may draw unintended tax consequences.

“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” O’Malley said. “Experts estimate heirs may receive less than 50% of IRA assets that pass through estates.” A provision in the federal law extends this special option: transferring IRA assets directly to charity. By going directly to a qualified public charity such as the Community Foundation, the money is not included in the IRA owner’s income and most importantly, is not taxed, preserving the full amount for charitable purposes.

Annually, holders of traditional IRAs who are at least 70½ years old can make direct charitable transfers up to $100,000. Individuals may exclude the amount distributed directly to an eligible charity from their gross income. The Cape Cod 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 is a powerful and limited opportunity. The window is open now, but will close at the end of the year,” said O’Malley. “For anyone interested in establishing a permanent legacy in this community, this is an opportunity to make the gift of a lifetime.”

The Cape Cod Foundation is a community foundation whose mission is to build permanent charitable resources for community betterment through informed grantmaking and civic leadership. The Foundation has distributed more than $52 million in grants and scholarships since its founding in 1989. www.capecodfoundation.org