Bailout add-on extends charitable IRA rollovers

October 20, 2008
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Nonprofits received an unexpected gift courtesy of the U.S. Congress this month, when the Senate revived a law allowing the donation of Individual Retirement Accounts as one of the myriad of unrelated amendments to the financial bailout bill.

Much of the $110 billion in extras tacked onto the Emergency Economic Stabilization Act of 2008 was derided as pork, but Council of Michigan Foundations President & CEO Rob Collier was delighted when he learned the provision had been resurrected.

“It’s a very important step because it’s effective immediately for people doing year-end planning,” said Collier, whose organization represents 400 grant-making entities.

Originally part of the federal Pension Protection Act of 2006, the charitable IRA rollover law allows people age 70½ and older to roll over a traditional IRA of $100,000 or less to certain nonprofit organizations and avoid counting the distribution as taxable income. However, the donor gives up the federal tax deduction for donations.

Although a law had been proposed last year that would broaden the eligible charities, drop the $100,000 limit and lower the age to 59½, the bailout amendment is exactly the same as the PPA law and simply extends the sunset date to Dec. 31, 2009.

“If you don’t need it for daily living expenses, you could gift it to your favorite charity and not have to pay tax on it as well,” Collier said.

Varnum Riddering Schmidt & Howlett partner Tom Kyros, president of the West Michigan Planned Giving Group, said the legislation is a major year-end development.

“When it first came out, there was really quite a bit of activity.”

Grand Rapids Community Foundation Vice President for Development Marilyn Zack said her organization saw $450,000 in 20 charitable IRA rollover gifts in 2006 and 2007.

“We are excited about this, as I’m sure many nonprofits all over the country are. It generated a lot of new charitable capital last year and the year before,” Zack said. “Because those assets are so heavily taxed at death, if someone does have money in an IRA, this allows them to make a gift during their lifetime and get it out of their estate plan.”

At the Kalamazoo Community Foundation, the law generated $580,000 in 2006 and 2007, CFO Susan Springgate said.

“Nonprofits throughout Michigan are really going to need that support,” Springgate said.

According to the Chronicle of Philanthropy, the bill encompassed several other measures related to charitable giving, including tax incentives for flood relief in the Midwest; food donations by businesses and farms; and business donations of books and computers to schools.

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