Window closes Jan. 31 for 2010 IRA charitable rollover

January 21, 2011
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Congressional foot-dragging on tax legislation, which also covered the donation of Individual Retirement Accounts, cost Calvin College some gifts for 2010, the director of planned and major gifts said last week.

“All year people were contacting us, saying, ‘Hey, has the legislation changed yet, has it been extended?’ So there was significant interest,” said Sally Vander Ploeg, who is also president of the Western Michigan Planned Giving Group. “I would say it did affect us with gifts. There is no question about that.”

In mid-December, President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which included a grandfathered extension of the IRA Charitable Rollover provision.

First enacted in 2006, the rollover provision permits people at least 70½ years old to make tax-free donations of up to $100,000 directly from traditional IRAs to nonprofit organizations. It expired at the end of 2009.

But by December, many people were facing the deadline for taking the required minimum distributions from IRAs, said David Korte, of Korte Consulting, and president of the West Michigan Estate Planning Council.

“They really didn’t do anybody any favors in passing the law so late in the year,” said Korte, who added that many wealthy people in his client base like this method as a way to donate to charities without having to count the distribution as taxable income. However, the IRA donations, which must be directly distributed to the charity, cannot be itemized on federal income tax returns.

“Logistically, you had to get it done fairly quickly. By Dec. 17, most people had already done their minimum distributions. Many brokerage houses required you do the required minimum distribution by that time so they had time to process it,” Korte said.

Marilyn Zack, vice president of development for the Grand Rapids Community Foundation, noted that Congress, recognizing the impact of its late action, gave people until the end of January to make such donations and still have them count for the 2010 tax year. That’s more likely to attract people who now want to hit the $100,000 ceiling with the donation, or who planned to donate smaller amounts anyway.

“There are a huge amount of assets tied up in IRAs,” Zack said. “It doesn’t just represent the savings of really wealthy people. All kinds of folks diligently saved money over time, and are finding they likely won’t be able to spend it. It’s a great way to get that money out of your estate and sort of speed up charitable giving.

“We gotten a number of those kinds of gifts in the $5,000 to $10,000 range; in fact, that seems to be the most common, from my perspective,” Zack said.

Zack and Randall Johnson, executive director of the Pine Rest Foundation, both made sure this month that their donor bases were educated about the extended IRA donation law. But Johnson said his organization has yet to see an IRA donation.

“It’s a limited set of people,” he said, noting that the tax regulations on these donations “start to really narrow the pool.”

Still, since the passage of the IRA Charitable Rollover extension, Calvin College has seen such donations hit the six-figure mark, Vander Ploeg said.

Michigan Nonprofit Association President and CEO Kyle Caldwell said his members, particularly those with established planned giving programs, have found the charitable rollover to be useful, even though it siphons tax revenue from the federal government. He said he would like to see it installed for a longer period.

“If not permanent, then certainly a longer term than one year,” Caldwell said. “The concern that you always have when you’re doing solicitations for fundraising is consistency and clarity. That’s not been the case with regard to this option.”

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