The IRA Charitable Rollover Provision was first enacted in 2006 as part of the Pension Protection Act. It has resulted in billions of dollars in charitable transfers since its inception. Congress, however, has allowed it to expire and then reinstated on several occasions.
The provision is widely expected to be retroactively extended again by the end of 2014.On December 3, 2014 the House passed legislation (H.R. 5771) that would renew retroactively for 2014 the package of expired tax extenders, including the IRA Charitable Rollover Provision.
This provision allows individuals who have reached age 70½ to donate up to $100,000 to charitable organizations directly from their Individual Retirement Accounts (IRA), without treating the distributions as taxable income. It is part of a package of 55 temporary tax extenders that were allowed to expire on January 1, 2014.
Individuals may begin taking distributions from their IRAs as early as age 59½, but are required to begin taking them at age 70½. Normally, these distributions are subject to income taxes.
Since the provision was first enacted, Americans have made millions of dollars of new contributions to nonprofits — including social service programs, religious organizations, arts and cultural institutions, schools, and health care providers — that benefit people every day.
• Eligibility Age. Taxpayers age 70½ and older are required to make annual distributions from their IRAs which are then included in the taxpayers’ adjusted gross income (AGI) and subject to taxes. The IRA Charitable Rollover permits those taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their AGI and, consequently, without paying taxes on them.
• Annual Cap. A donor’s total combined charitable IRA rollover contributions cannot exceed $100,000 in any one year.
• Eligible Charities. Charitable contributions from an IRA must go directly to a public charity that is not a supporting organization. Contributions to donor-advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions.
• Eligible Retirement Accounts. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.
• Directly to the Charity. Distributions must be made directly from the IRA trustee payable to the public charity.
• No Gifts in Return. Donors cannot receive any goods or services in return for charitable IRA rollover contributions in order to qualify for tax-free treatment.
• Written Receipt. In order to benefit from the tax-free treatment, donors must obtain written substantiation of each IRA rollover contribution from each recipient charity.