Here’s the question of the day.

Question: My client is 73, and has a substantial IRA balance.  She wants to make a transfer from her IRA to a charitable gift annuity (CGA).  Will the transfer be subject to federal income tax?

 

Answer:  Yes.

Charitable IRA Rollover first became available under the Pension Protection Act of 2006.  That Act made it possible for IRA owners over the age of 70-1/2 to transfer up to $100,000 per year from their IRAs directly to a public charity without having to report it as taxable income.  In addition to not being included in taxable income, the amount transferred did count towards the Required Minimum Distribution (RMD) for the account owner.

The Charitable IRA Rollover opportunity has been extended multiple times, but it is currently scheduled to expire at the end of this year.

 

Here are the requirements for doing a Charitable IRA Rollover:

 

• · The IRA owner must be age 70-1/2 or older on the date of the gift.

 

• · The gift is limited to $100,000 per taxpayer per year.

 

• · The gift must be made directly from the IRA custodian to the charitable organization.

 

• · The gift must be made to a public charity and may not be made to a donor advised fund or supporting organization.

 

• · The gift must be a current outright gift and the donor may receive no benefits in exchange for the gift (i.e. no gift annuity).

 

• · The gift must be made from IRA funds that would have constituted taxable distributions.

 

In this case, the proposed transfer is for a gift annuity, rather than directly to a charitable organization, so the direct transfer is not allowed.  If the taxpayer proceeds with the CGA, she will pay tax on the entire amount of the distribution, and may have a partly offsetting tax deduction for the charitable gift.

 

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