IRA Charitable Rollover
David A. DeJarnett
This article will explain the possible
advantages of an IRA charitable rollover, also
called a “qualified charitable distribution.”
Individuals who are 70½ or older may annually
roll over up to $100,000 from an individual retirement
account directly to a qualifying charity without
recognizing the assets transferred to the qualifying
charity as income. The individual may not take a
charitable contribution deduction for the contribution;
to do so would result in a double benefit for donors,
which is explicitly prohibited. The chosen charity
cannot be a supporting organization or a donor advised
fund held by a public charity. The chosen charity can
be a private foundation that elects to meet the conduit
rules (described below) in the year of the distribution.
A private foundation may elect to meet the
conduit rules and pay out 100 percent of the
contributions the foundation received in its tax year
by the 15th day of the third month after the close
of that tax year, in addition to meeting its regular
five percent distribution requirements. A private
foundation may elect to be or not to be a conduit
private foundation from year to year.
Distributions to other types of funds typically held
by community foundations – such as scholarship, fieldof-interest, and designated funds – qualify to receive a
charitable rollover.
If a charitable rollover is made to a charity that does
not qualify, the donor will have to first recognize those
distributions as income. They then must calculate
their charitable deduction according to the general
rules pertaining to percentage limitations and itemized
contribution reductions.
The law limits the amount that donors are able to
exclude from their income to $100,000. If donors wish
to take funds from their IRA to contribute more than
$100,000 to charity, they cannot exclude the additional
amount from their gross income. Rather, they must
follow the general rules pertaining to percentage
limitations and itemized contribution reductions.
Generally, this provision benefits donors who
itemize deductions and whose charitable contributions
are reduced by the percentage of income limitation.
Traditionally, when individuals receive a distribution
from their IRA and make a corresponding charitable
contribution, they must count the distribution as
income and then receive a charitable deduction for any
amounts they transferred to charity. For higher income
taxpayers, the charitable contribution deduction they
receive may not totally offset the taxes they must
pay for receiving the distribution from their IRA. In
such cases, donors would potentially benefit more by
using the charitable rollover provision when making a
charitable donation.
Other donors who may benefit are individuals who
do not usually itemize their deductions.
Individuals must instruct their IRA trustee to make
the contribution directly to an eligible charitable
organization. Individuals making a charitable
contribution using IRA funds must obtain from the
charity a contemporaneous written acknowledgement
of the contribution to benefit from this provision.
If the donor receives any goods or services (e.g.,
tickets to a fundraiser) that would have reduced
their charitable deduction had they made an outright
gift to the charity, the rollover of assets from an
IRA will not qualify for the tax-free treatment
under this provision. Gifts to the donor that are
disregarded (i.e., public recognition, token gifts,
and insubstantial benefits) will not disqualify the
contribution from the tax-free treatment.
Shortly after individuals reach the age of 70½, they
are generally required to receive distributions from
their traditional IRA. For the purposes of minimum
required distributions, the IRS treats distributions
from an IRA the same, whether individuals use
the distribu