The IRA charitable rollover provision of the Internal Revenue Code, which allows individuals age 70½ or older to transfer, tax-free, up to $100,000 per year from an IRA to one or more eligible charities, has become permanent law, retroactive to January 1, 2015. This provision entered the Code as a temporary measure under the Pension Protection Act of 2006. Congress then extended it several times, most recently through December 31, 2014. It was made permanent when President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015 into law last Friday, and the provision will apply retroactively to all eligible IRA charitable rollovers made on or after January 1, 2015.
To qualify, funds must be transferred directly by the IRA trustee from an IRA to an eligible charity on or after the date the IRA owner attains age 70½, and the IRA owner cannot receive any quid pro quo or consideration for the transfer. As a general rule, public charities such as churches, hospitals, museums and educational organizations are eligible recipients, but private foundations are eligible only if they are operating foundations. Donor-advised funds and supporting organizations are not eligible recipients. However, community foundations maintain other types of funds – namely, unrestricted funds, field-of-interest funds and funds designated for a single organization or group of organizations – that are eligible roll-over recipients.
Under the provision, an IRA owner may exclude up to $100,000 of qualified distributions per year from his or her gross income, resulting in lower taxable income for the IRA owner. However, once a qualified distribution is excluded from gross income, no charitable contribution deduction may be taken for the amount. This provision may especially benefit donors who do not itemize their deductions and therefore do not receive tax benefit for their charitable contributions. Qualified charitable distributions are counted for purposes of meeting the IRA’s annual minimum distribution requirement.
IRA owners who wish to take advantage of this provision for the 2015 tax year, but have not made distributions earlier in the year due to the unclear state of the law, still have a few days left before the end of the year to make a qualified distribution. Going forward, now that the provision has become permanent law, donors will have more time to plan and implement their IRA charitable gifts from year to year.