IRA Charitable Rollover

Sample instruction letter from IRA owner to IRA administrator (word doc)

Sample letter from IRA donor to charity (word doc)

Sample acknowledgement letter from charity to IRA donor (word doc)

With the signing of the PATH Act (Protecting Americans from Tax Hikes) on December 18, 2015, the IRA (Individual Retirement Account) Charitable Rollover was made permanent.  This legislation, first introduced as part of the Pension Protection Act of 2006, allows individuals who are 70 ½  (or older) on the date of the charitable distribution to request tax-free distributions from their IRA to their favorite charity.

Individuals who are at least age 70 ½ are generally required to begin receiving “required minimum distributions” (or “RMDs”) from their IRAs. RMDs are taxable to the IRA owner.  The IRA Charitable Rollover allows individuals to request the direct transfer of funds from their IRAs to qualified charities (“qualified charitable distribution” or “QCD”). A qualified charitable distribution can satisfy all or some portion of an individual’s RMD for a given year.    

For example, if 75-year-old Mary’s annual RMD from her IRA is $15,000, Mary can request that her IRA administrator make a qualified charitable distribution of $15,000 to her favorite charity or charities. The $15,000 is not taxable to Mary and it is not deductible by Mary as a charitable contribution. The distribution can be used to fulfill Mary’s RMD.

In order to be a Qualified Charitable Distribution, there are a few requirements and limitations: 

  • The IRA owner must be at least age 70 ½ on the date of the distribution.
  • Distributions can only be made from traditional IRAs or Roth IRAs. Charitable distributions from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment. 
  • The amount that can be excluded from an IRA owner's income is limited to $100,000 per year. Amounts exceeding this amount are treated under the old rules.
  • Transfers from an IRA must be made directly from an IRA administrator to a public charity that is not a supporting organization. Transfers to donor-advised funds and private foundations, except in narrow circumstances, are not qualified charitable distributions for purposes of the IRA Rollover.
  • Donors cannot receive any goods or services in return for a transfer from an IRA.
  • Donors must obtain written substantiation of each IRA rollover transfer from each recipient charity. 

No transfers for life-income gifts such as charitable gift annuities or charitable remainder trusts are permitted. In addition, the only way that IRA gifts can be used for donor-directed permanent funds at the Christian Church Foundation is for the donor to relinquish the ability to amend gift agreement documents. 

Because the IRA Charitable Rollover avoids federal taxable income, but does not produce a taxable deduction, it does not reduce the total taxes payable for all taxpayers. Individuals likely to benefit from this legislation are:  

  • Those who do not itemize income tax deductions eliminate the taxable income from their RMDs, without losing any portion of the standard deduction. 
  • Donors who would not itemize if it were not for their charitable gifts may no longer need to do so if they fund their gifts from their IRAs. 
  • Donors who have large charitable deductions carried over from prior years may benefit by making current year gifts from their IRA, as will high income donors subject to the Pease limitation on itemized deductions
  • Donors who live in states that do not provide a deduction for charitable gifts are likely to save state taxes by utilizing a QCD to make their charitable gifts. Using a QCD for charitable giving may be particularly attractive to taxpayers residing in Indiana, Massachusetts, and Ohio - states that tax retirement distributions but do not allow itemized deductions. Residents of New Jersey and Michigan (which cap the amount of retirement distributions subject to state income tax) may enjoy a partial benefit. Always check with your tax advisor to verify the rules that apply in your situation.
  • For individuals who benefit from this legislative provision, the IRA Charitable Rollover can allow them to consider larger gifts without disadvantaging their personal financial situation. We believe it is worthwhile for all ministries to understand the opportunities provided by this tax provision, and to be careful to note the differences between gifts received directly from a donor’s IRA and other (deductible) charitable gifts.   

The Christian Church Foundation does not render legal, tax or other professional advisory services. Advice from an attorney and other professional advisors should be sought when considering charitable giving.

Using Your IRA for a
Tax-Smart Gift 

Ruth Weaver, senior vice president, encourages IRA owners who have passed the age of 70 ½ to learn more about the potential benefits of using a part of their Required Minimum Distributions (RMD) for charitable gifts. These IRA transfers can be a tax-advantaged way to give to your congregation and other Disciples causes.  IRA distributions can be directed to a Foundation permanent fund only if the controlling gift agreement does not allow an individual to later change the beneficiary(ies) of the fund’s income. Named permanent funds that begin with the charitable beneficiary’s name can receive these gifts without a special agreement tailored to receive IRA gifts. These funds include Week of Compassion, Disciples Women’s Endowment, Men’s Ministries Endowment, Black Disciples Endowment,  Bethany Fellows and other such ministry-named funds.

Most current Foundation permanent funds are endowed donor-advised funds, meaning that an individual has retained the right to make changes to the fund’s beneficiary(ies) during their lifetime.  While the law does not allow these funds to receive tax-advantaged IRA transfers, Weaver said that a number of donors have worked with the Foundation to create restricted funds that are able to receive their gifts. 

Donors interested in making gifts from their IRA should contact their Foundation representative prior to initiating a transfer of IRA funds. To protect the donor’s favorable tax treatment, a Lifetime Gift Agreement should be signed and in place before the IRA distribution is received from the plan administrator. A Lifetime Gift Agreement will specify that the contributions are coming from an IRA, and include this wording: “Because these are gifts from my IRA account, I understand that I may make no further changes to this gift agreement.”  Once a Lifetime Gift Agreement is in place, the fund can receive future IRA gifts from the donor.  

If you’re interested in using an IRA distribution to fund such a gift, please contact your zone development officer to complete the necessary paperwork prior to the distribution from your IRA administrator. Development officers, working alongside our Indianapolis staff, can make sure the Lifetime Gift Agreement is worded to comply with the regulations surrounding these tax-advantaged IRA transfers.