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How to Make a Sizable Charitable Donation From Your IRA - Tax Free

If you are over 70 1/2 years old, want to3. If given to a charity, rules which limit
make a gift for a special charitable project,the amount that could be deducted as a
but your only liquid asset is your IRA, Icharitable contribution would have to be
have  good  news  for  you.followed. This means that they may still have
to pay tax on a portion of their IRA
On August 17, 2006, the Pension Protectionwithdrawals.
Act of 2006 (PPA 2006) was signed into law.
This nearly 1,000 page piece of legislationBut thanks to provisions in PPA 2006, Roger
marked the most sweeping changes to theand Claire can make their gift to the Humane
pension  arena  in  30  years.Society and Bill and Diane can pay off their
church's new organ using money from their
Let me give you two common examples thatIRAs and not pay any tax on the withdrawals.
contain problems faced by seniors solved byBut  they  have  to  follow  the  rules...
PPA  2006...
1.  First,  you  must  be  at  least  70 1/2.
Roger and Claire are retired. Roger spent his
working career in the aerospace industry. He2.  You  can  give  up  to  $100,000.
was more than well compensated and over the
years accumulated a very large 401(k) plan.3.  This  only  applies  to  2006  and  2007.
When he retired, he rolled his 401(k) into an
IRA. Other than their home, the IRA is far4. You can't withdraw the money from your IRA
and  away  their  biggest  asset.and then give it to your charitable cause.
The transfer must be made directly from the
For years, Roger and Claire have beencustodian  of  the  IRA  to  the  charity.
supporters of the Humane Society. Their local
chapter is building an entire new wing on to5. These gifts, called IRA charitable
their kennels. Roger and Claire would love torollovers, count towards your required
make a significant donation-somewhere in theminimum  distribution  for  the  year.
neighborhood  of  $50,000  to  $100,000.
6. IRA charitable rollovers are not permitted
Bill and Diane both worked during theirfor gifts to donor advised funds and
entire careers. Mary taught 6th grade for 40supporting organizations. However, there are
years. Bill was a career military officer.some exceptions that apply to funds held by
After his retirement, he spent another 20community foundations: scholarship, field of
years working in the private sector. Likeinterest, and designated funds qualify. So
Roger,  Bill  has  a  large  IRA.the first step is to contact your intended
cause to see how they are classified and
When Bill turned 70 1/2, he was required towhether or not the law allows an IRA
start taking the minimum requiredcharitable  rollover  gift.
distributions each year from his IRA. But
Bill and Diane don't need the income; their7. The gift must be a pure gift. In other
other retirement income sources are more thanwords, there can't be any personal benefit
adequate. Nevertheless, Bill must take thesestrings  attached  like  tickets to an event.
RMDs  and  pay  tax  on  them  as  income.
8. You don't have to report the IRA
Bill and Diane have been active in theircharitable  rollover  as  income.
church all their married life. Their church
just bought a new organ. The church did not9. However, you don't get a charitable
pay cash for the organ; the majority of itdeduction for your gift. Sorry, you can't
was financed. Bill and Diane would like tohave  your  cake  and  eat  it  too.
pay  off  the  organ.
This new law is a real winner. In these two
Both Roger and Claire and Bill and Diane areexamples, the Humane Society is able to build
warm-hearted people. But, prior to thenew kennels and a church pays off an organ
passage of PPA 2006, their generosity couldthey thought they were going to have to
have  been  thwarted  by  several  things...finance. The donors were able to make it
happen despite the fact that the only real
1. In both cases, their principal liquidasset  they  had  was  an  IRA.
asset was an IRA. Neither couple had other
assets  from  which  to  make  a  gift.I do not dispense tax advice. It is
imperative that you consult with your tax
2. If the large sums were withdrawn fromadvisor and the charity to make sure it is
their IRAs, they would be subject to ordinaryqualified and that the gift is made in the
income  tax.proper manner.



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