October 6, 2008

Bailout Bill Contains Good News for Donors


A section of the federal “Rescue Package Bill” just signed by President Bush contains a largely overlooked benefit for potential donors to the University of Alaska. The bill revives the provision that allows individuals to transfer funds from their Individual Retirement Accounts (IRA) directly to a charity and not have to recognize those funds as income (and hence subject to income tax). This incentive had previously been in effect for the 2007 tax year but expired on Dec. 31, 2007.

The new measure allows donors to take advantage of this provision for all transfers made to charity during the 2008 and 2009 tax years and will expire on Dec. 31, 2009.

The new law is essentially the same as the one which expired. It allows IRA owners who are at least 70˝ to make gifts of up to $100,000 annually directly to a charity from their IRA without having to recognize the transferred amount as income for federal tax purposes. The amount given to charity also counts toward an individual’s required annual minimum distribution from the IRA.

Donors gain several advantages under the revived law. First, and obviously, the amount given to charity by an individual is excluded from his or her gross income. Previously an individual had to take the distribution from the IRA as income before making a gift of the funds to charity. While the resulting charitable income tax deduction sometimes resulted in a “wash” it often had the negative effect of increasing the individual’s income and thus the percentage of an individual’s Social Security payments upon which they had to pay taxes.

Second, the transfers made to charity under the law do not count toward the 50% Adjusted Gross Income limitation on charitable gifts of cash. This allows donors with large IRA’s but small incomes to make sizable gifts without running into the limitation.

Finally, the law allows donors who do not itemize (and are thus ineligible for the standard charitable income tax deduction for gifts) to enjoy tax benefits for their gifts similar to those enjoyed by itemizers.

As with the previous IRA Charitable Rollover Law, transfers have the following stipulations:

1) They must be made directly from the IRA account by its trustee to the University
2) They cannot be used to fund life income gifts such as Charitable Gift Annuities and Charitable Remainder Trusts
3) They may not be made in return for quid pro quo benefits given by the charity to the donor
4) They are not eligible for a charitable deduction on federal income tax
5) They may only be made with taxable assets

Donors should consult with their tax advisors prior to making gifts under this law and should inform the University if their gift consists of an IRA Charitable Rollover so the appropriate acknowledgments for tax purposes may be provided by the University.

To learn more about making a gift to the University of Alaska from IRA assets under the new law, please contact Scott Taylor at (907) 450-8030 or scott.taylor@alaska.edu

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