A Guide to IRA Charitable Rollovers Emergency Economic Stabilization Act of 2008 With Case Studies James E. Connell FAHP, CSA Connell & Associates Charitable Estate and Gift Planning Specialists

A Guide to IRA Charitable Rollovers Effective for 2008 and 2009 IRA account owners 70 ½ or older may make a direct transfer to charity up to $100,000 per year Donor profiles Convenience donor Standard deduction donor Generous donor Major donor Social security donor

Signed by Bush on October 4, 2008 Allows for IRA rollovers to charity Both regular IRA accounts and Roth IRA accounts are eligible Charity must be eligible Individual must be 70 ½ or older on the date of contribution Qualified Charitable Distribution will qualify for the Required Minimum Distribution requirements of IRA $100,000 limit $200,000 from couple with separate accounts 2008 and 2009 transfers only Transfers from other pensions and profit sharing plans, i.e. Keogh, 401k, 403b, etc., are not allowed Possible to rollover above accounts to IRA if plan and time permit A Guide to IRA Charitable Rollovers

Eligible charities 501(c)3 public charities 509(a)1 and section 170(b)(1)(A) Field of interest funds Restrictions on use of gifts permitted (i.e. scholarship funds or building funds) Not Permitted 509(a)(3) supporting organizations  Especially effects hospital foundations Donor advised funds Private foundations A Guide to IRA Charitable Rollovers

Permitted transfers/gifts Qualified Charitable Distribution (QCD) Outright gifts only No charitable gift annuities No charitable remainder unitrusts No charitable remainder annuity trusts No pooled life income funds No “quid pro quo” gifts No personal benefits No special events No athletic tickets A Guide to IRA Charitable Rollovers

Suggested procedures Notify charity of potential gift Instruct custodian/trustee of IRA on the proper form and if no form send a complete letter of instructions with payment/gift to the charity as a “third party payment” Transfer will be mostly cash but in-kind transfers (i.e. securities) are permitted Keep records of transfer and substantiation from charity If appropriate, elect out of withholding A Guide to IRA Charitable Rollovers

Donor Profile – Convenience Donor Most delay taking distributions until the last quarter of the year in order to grow the remaining funds tax free If actively making charitable gifts may consider the benefits of taking them from their IRA account(s)  No inclusion in income  No income tax deduction  Qualifies for Minimum Required Distribution (RMD) A Guide to IRA Charitable Rollovers

Donor Profile – Non-Itemizers May be donors with modest IRA account balances, but sufficient retirement income from personal investments and tax-exempt accounts Taking MRD may not significantly increase their lifestyle Do not have significant tax deductions  State and local income taxes  Interest expenses  Medical expenses  Charitable deductions So the standard deduction applies (2008), over 65  Married/Joint - $11,950 one / $13,000 two  Single - $6,800  Head of household - $9,350 A Guide to IRA Charitable Rollovers

Donor Profile – Generous or Major Donors Most have large IRA accounts May be giving at or above the 50% of AGI limit May be subject to the 3% reduction rule if AGI exceeds $159,950 (2008) May wish to make a large gift with immediate impact for a special project in 2008 Carry forward may or may not be a concern because of age, health or wealth May have filled up their 30% limit with a carry forward and have no 50% assets to contribute A Guide to IRA Charitable Rollovers

Donor Profile – Social Security Donor Social security is subject to two taxes when income reaches certain levels A tax on 50% of SS income at the first level A tax on 85% of SS income at the second level Donors with income in excess of the second level may consider reducing their taxable income by making gifts from their IRA accounts thus reducing their taxable income limit A Guide to IRA Charitable Rollovers

Case example $500,000 IRA account, with a $30,000 Required Minimum Distribution A.$30,000 to charity B.$10,000 to charity, $20,000 to owner C.$100,000 to charity: $30K to charity #1 $30K to charity #2 $30K to charity #3 $10K to charity #4 D.$100,000 to charity and $50,000 to owner A Guide to IRA Charitable Rollovers

Case Example Carol in Florida, widow, husband was former DuPont employee, died under Hospice care, lives in a total care retirement facility, does not spend the income generated by her IRA retirement assets Age 81, with $113,000 in IRA totally invested in Vanguard Windsor Fund Received her $5,500 RMD in January and reinvested RMD into Vanguard Tax-Exempt Fund, has significant tax-free retirement income Objective: Give total IRA account to Hospice Plan: Gave $90,000 in November 2006  Give balance of account in January 2007 A Guide to IRA Charitable Rollovers

IRA account with deductible and non- deductible contributions IRA account value of $100,000 with $20,000 non- deductible contributions and $80,000 of deductible contributions and earnings, no other IRA, normally withdrawals follow the pro-rata rules $80K is distributed as a QCD Under the provisions of the regulations the QCD is considered coming from income first up to the total amount that would be includable in gross income All $80K is exempt from taxation Balance of $20K is not subject to taxation and can be withdrawn income tax-free A Guide to IRA Charitable Rollovers

Other Concerns Conversions of other retirement accounts to IRA accounts Custodian or trustee reporting on 1099R Custodian or trustee minimum QCD levels State income tax impact for charitable gifts State income tax impact for QCD Electing out of withholding for MRD Charity substantiation for $250 or over following the rules of Tax Revenue Section 1.170A-13f, contemporaneous written acknowledgement A Guide to IRA Charitable Rollovers