Donating IRA assets to Friends of the Apostle Islands Legislation offers a tax break for retirees

 The Pension Protection Act of 2006 introduced a provision enabling retirees to take tax-free withdrawals from their IRA provided the money is transferred directly to a qualified charitable organization of their choice.

 Important update: Originally set to expire in 2007, the Emergency Economic Stabilization Act of 2008 has extended this provision through tax year 2009.

 How it works

The provision allows retirees who have reached age 70 ½  and older to donate up to $100,000 tax free from their IRA each year. Generally, when you take a distribution

from your IRA, it is treated as taxable income.  Under this temporary provision, however, those assets are excluded from income if the distribution is made directly to a charity.

 The distribution is not included in your income so you avoid the potential negative consequences that regular IRA withdrawals in retirement can create, including

the phase-out of personal income exemption and taxes on Social Security benefits. Distributions excluded from income are also equivalent to a 100% deduction.

Normally, charitable contribution deductions are limited to a lower percentage (or are eliminated altogether) for taxpayers who do not itemize and take the standard deduction.

 Turn your required distributions into charitable donations

IRS rules mandate that individuals age 70 ½ and older take required minimum distributions (RMDs) from their IRA each year, regardless of whether the income

is needed. These annual withdrawals are subject to ordinary income taxes. By making a charitable contribution from your IRA, you can satisfy your RMD amount without reporting additional income.

 This provision may be especially attractive for retirees who don’t need all the income from their IRA to meet current living expenses. By donating the money to charity, you can enjoy the satisfaction of knowing that you are contributing to a worthy cause while effectively lowering your tax bill.

Is a charitable contribution from an IRA right for you?

Donating IRA assets can be a financially rewarding strategy for both you and the charity.

As always, you should talk with your financial representative or tax advisor before making a decision that alters your tax situation.

Here is one example where it may be appropriate.

 • Generally, in order to claim a charitable deduction, you must itemize your tax return. For retirees who no longer pay mortgage interest, the deductions may be too small to itemize. The new provision offers the tax benefits of a charitable contribution without your having to itemize your deductions.

GUIDELINES FOR DONATING IRA DISTRIBUTIONS TO A CHARITY

Eligibility:

IRA account owner must be age 70 ½ or older at time of IRA distribution in order to take advantage of this provision. Rule applies only to Traditional, Rollover, and Roth IRAs; SEPs and SIMPLE IRAs are generally excluded. Distributions of non-deductible IRA contributions also do not qualify.

Annual Limit:

Annual limit Qualifications Direct contribution

Maximum amount of a taxpayer’s qualified charitable distribution must not exceed $100,000 per tax year and may include Required Minimum Distributions (RMDs).

Qualifications:

Distribution must be made to a qualifying charity; private foundations and donor-advised funds are not eligible. Donations must be made by 12/31/08 and 12/31/09 to qualify for tax years 2008 and 2009, respectively. Consult a tax professional for additional information.

 Direct contribution:

The IRA Trustee or custodian must make the distribution directly to the charity. Distributions made payable to the IRA owner and transferred to the charity will not qualify.