The Pension Protection Act of 2006: A Charitable Giving Opportunity

After several years of advocacy by charities and their supporters, Congress has enacted legislation as part of the Pension Protection Act of 2006 that offers charitably minded individuals an opportunity to make gifts from their Individual Retirement Accounts (IRAs) and to exclude the amount of their gifts from their gross income. To qualify:

• The donor must be 70½ years of age or older at the time of the gift;
• The transfers must go directly from the IRA to qualified charities;
• Gifts cannot exceed $100,000 per taxpayer per year; and
• Gifts must be outright (i.e., no benefits such as income may be received).

This opportunity is only available this year (2007), and no charitable income tax deduction is allowed for gifts made in this way. Transfers to donor advised funds and supporting organizations do not qualify, nor do transfers used to fund a charitable gift annuity, charitable remainder trust, or other life-income gift (as such life-income gifts are not outright). The New York Public Library is a qualified charity for the purposes of the new law and welcomes such gifts.

Before now, individuals making withdrawals from their IRAs would have had to include the amount of the withdrawals in their taxable income and would have been entitled to a charitable income tax deduction (subject to limits of deductibility) to offset the inclusion. While this amounted to a wash for many individuals, the new law may help others including:

• Individuals who are required to take minimum withdrawals but don’t need additional income; transfers to charity meet the distribution requirements.
• Individuals who regularly give up to 50% of their adjusted gross income to charity (after which point, deductions must be carried forward or are disallowed) or who are subject to the 2% rule (limiting deductions for those with high adjusted gross incomes).
• Individuals who live in states where a charitable deduction is not available for state tax purposes (e.g., Massachusetts).
• Individuals who do not itemize and who make charitable gifts in an amount less than the current standard deduction (for 2006: $5,150 for single filers, $10,300 for married couples).
• Individuals whose major assets reside in their IRAs and wish to make significant charitable gifts before the end of 2007.

For more information, please contact the Planned Giving Staff.