Ashland, Ky. Since 1974, millions of Americans have saved billions of pre-tax dollars in individual retirement accounts (IRAs). Thanks to continued savings and investment returns, an estimated $3.6 trillion is currently invested in IRAs, and the total continues to grow. In August 2006, a federal law was enacted allowing IRA owners to share the wealth of their retirement savings by giving directly to charity—without first counting it as income and paying income tax, according to Mary Witten Wiseman, president of the Foundation for the Tri-State Community, Inc.
The new law could be a boon to local philanthropy, but only for two years. The 2006 benefit expires December 31; the 2007 benefit is good only from January 1 to December 31, 2007.
“This is a wonderful win-win — for people who would rather give to charity than pay taxes and the nonprofit organizations they choose to support,” said Wiseman.
Thanks to decades of deliberate saving and favorable investment returns, a substantial share of today’s retirees has more money in their IRAs than they’ll ever need. Many have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which sharply reduces the value of the gift. Others have asked about designating their children as beneficiaries, but that may draw additional tax consequences.
“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” Wiseman said. “Experts estimate heirs may receive only 25 percent to 30 percent of IRA assets that pass through estates.”
A provision in the new federal Pension Protection Act of 2006 creates a new option: transferring IRA assets directly to charity. By going directly to charity, the money is not included in the IRA owner’s income and — most important — is not taxed, preserving the full amount for charitable purposes. The law covers gifts made this year and next.
In 2006 and 2007, holders of traditional IRAs who are at least 70½ years old can make direct charitable transfers up to $100,000 per year. A single person can transfer $200,000 free from federal tax; a married couple can transfer up to $400,000 free from federal tax from separate accounts. As a qualified public charity, the Foundation for the Tri-State Community can help donors execute the transfers and choose from several charitable fund options for their gift. Donor Advised Funds do not qualify for tax-free IRA transfers.
“This really is a limited-time offer: the window is open now, but it will close at the end of 2007 unless Congress extends it,” said Wiseman. “For anyone interested in establishing a permanent legacy in this community, this is the opportunity of a lifetime to make the gift of a lifetime.”
The Foundation for the Tri-State Community, Inc. is a community foundation serving eastern Kentucky, southern Ohio and southwestern West Virginia. It is the area's only community foundation. Its primary mission is to improve the quality of life by raising, encouraging, administering, and distributing gifts for charitable, educational and scientific purposes.
Gift of a Lifetime: Shopping for Charity
Having more retirement money than you need is a great problem to have, and one that’s now easier to solve. But generous IRA donors still face multiple options for their gifts: Support the entire community? Underwrite a special cause? Shore up a favorite charity? Here are three top charitable fund picks of Mary Witten Wiseman, president of the Foundation for the Tri-State Community.
Community Fund — Meeting ever-changing community needs.
IRA transfers to a Community Fund address a broad range of current and future needs. The Foundation for the Tri-State Community evaluates all aspects of community well-being — arts and culture, community development, education, environment, health and human services — and awards strategic grants to select projects and programs. The Foundation for the Tri-State Community offers several Community Funds.
Wiseman: “For people who care deeply about this community and its people, this fund is an excellent way to address our most pressing needs, today and tomorrow.”
Field of Interest Fund—Connecting personal values to high-impact opportunities.
IRA transfers to Field of Interest Funds allow donors to target gifts to causes important to them: arts, the elderly, education, neighborhood revitalization, youth services and more. The Foundation for the Tri-State Community awards grants to community organizations and programs addressing the donor’s specific interest area.
Wiseman: “For those who are particularly passionate about a single cause, Field of Interest Funds provide strategic, lasting support—even as needs change over time.”
Designated Fund — Helping local organizations sustain and grow.
IRA transfers to Designated Funds allow donors to support the good work of a specific nonprofit organization — a senior center, museum or any qualifying nonprofit charitable organization.
Wiseman: “For people who want to help secure the future of their favorite charities, our endowed Designated Funds give nonprofits a steady stream of income, plus planned giving and investment management services.”
New Pension Law Also Provides for CharityProvision Allows for Tax-free Charitable Transfers from IRAs
December 1, 2007