Wednesday, January 5, 2011

ACT NOW - CHARITABLE IRA ROLLOVER ENDS JANUARY 31, 2011

Short Deadline. We are trying to get January's newsletter published early so that charities and clients with charitable intent are aware of the brief extension of the $100,000 charitable gift from IRA accounts. The compromise tax bill enacted by the lame duck Congress and signed by the President reinstates this special tax benefit for 2010 and 2011. However, this IRA Charitable Rollover extension expires soon - January 31, 2011.

Double-Up Opportunity. A Charitable IRA Rollover made by January 31, 2011 can be allocated to 2010 or the 2011 tax year. Thus, a Donor with a large IRA and charitable commitment could have a total of $200,000 charitable IRA gifts, with $100,000 allocated to 2010 and $100,000 allocated to 2011. Even for smaller gifts, this may be a once-in-a-lifetime opportunity to satisfy charitable pledges and charitable gift intentions in a tax efficient manner using IRA accounts!

The Old Law. The Pension Protection Act of 2006 originally enacted the Charitable IRA Rollover. The Charitable IRA Rollover was summarized in our newsletter of August 2006, available on our website. This offered tremendous tax advantages to a person 70-1/2 or older. This benefit has now been given new life for tax years 2010 and 2011.

Important Points.
(1) The Charitable IRA Rollover must be made directly by the IRA Custodian to the qualified charity.
(2) The account owner does not recognize any taxable income.
(3) If the gift is allocated in 2011, it can satisfy the minimum required distribution for 2011.
(4) This is particularly advantageous for individuals who take the standard deduction on their Federal Income Tax Return (without itemizing charitable gifts or other deductions).
(5) The Charitable IRA Rollover is especially helpful to Michigan residents, where itemized deductions are not allowed for state income tax purposes. In other words, the charitable rollover amount is not reported as income and therefore not taxable by Michigan.
(6) Generous donors have the opportunity to bypass limitations on charitable gifts covered as itemized deductions.
(7) Charitable IRA Rollovers are limited to persons age 70-1/2 or older.

Bottom Line. The 2010 Tax Relief Act created a brief window of opportunity for both charities and individuals. Satisfaction of charitable gifts and pledges can be made in the most tax efficient manner from an IRA account by January 31, 2011. All donors and potential donors should discuss the income tax planning opportunities with their income tax advisors.

Caution. Donors should contact their IRA Sponsor to determine the procedures and minimum contribution amounts of the particular advisor. We understand that some advisors establish minimums of $1,000-$5,000 each. Also, remember that contributions must be made to a public charity. Donor advised funds or private foundations do not qualify. For example, if a Community Foundation were a Donee, the contribution would have to be to its general fund, field of interest fund, or an endowment fund for a public charity that had a fund at the Community Foundation.

Conclusion. If you want more information about charitable gifting as part of your estate plan, or if your documents need a review and update as a result of the new law, contract Jim Modrall or Priscilla Hirt, as (231) 941-9660, or any of the other attorneys listed below, or to schedule a no obligation appointment. Other beneficial provisions of the 2010 law will be discussed in future newsletters.

Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., James R. Modrall, III, Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe, Nicole R. Graf, Priscilla V. Hirt at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.