New 2005 IRA Charitable Gift
Opportunity Ends December 31, 2005
This is to
alert you to a new, short term giving opportunity created as part of the
Katrina Hurricane Relief Tax Package (H.R. 3768) and broadened to
encourage continued giving to other charities.
One
provision of H.R. 3768 effectively permits unlimited IRA withdrawals and
gifts to charity from people who have reached age 591/2. The new law
allows donors to make a gift to a qualified charity of any amount
withdrawn from an IRA or similar retirement plan (such as a 401(k) or
403(b)) before the end of 2005 and deduct the entire amount in 2005. It is
important to note that this giving opportunity includes IRA gifts to
public charities, not only those involved in hurricane relief.
We want our
friends and supporters to be aware of this giving opportunity as they
review their year end philanthropy. The window of giving opportunity is
limited to gifts made between August 28, 2005 through December 31, 2005.
We've
excerpted a question and answer primer on the new law for your review. We
ask you to be mindful that each person's circumstances are different and
other state and federal laws may affect your plans. As with other
charitable gift planning, we urge you to check with your tax/financial
advisor before taking a retirement plan withdrawal to fund a charitable
gift. Please also feel free to call or e-mail if you wish to use this opportunity to make a charitable gift to
LSS. Thank you for your consideration and generosity.
Contact:
Mary Harty,
CFP
Lutheran Social Service of Minnesota
651-969-2337
mharty@lssmn.org
Guide to IRA 2005 Gifts
What is
the new 2005 IRA Gift concept?
Congress wanted to help charities assisting in the Hurricane Katrina
relief. So they decided to allow unlimited gifts to charity up to a
donor's total income.
How does
this affect IRA gifts?
When a person over 59 1/2 withdraws funds from his or her IRA, the
withdrawal will be included in the IRA owner's taxable income. Under the
new 100% of income charitable gifts option, the withdrawn funds may be
given in full to charity. The full gift will then be deductible.
Is there
a dollar limit?
Good news - the IRA withdrawal and gift option is unlimited. A person
can withdraw and give $1,000 or $10,000,000.
When is
this 100% gift deduction rule applicable?
Qualifying cash gifts must be made between August 28, 2005 and
December 31, 2005.
How
should a donor make this gift?
The IRA owner should withdraw the desired amount this year and make
the gift by December 31, 2005. Warning - some IRA custodians take two to
three weeks to process withdrawal requests! Please make the withdrawal
request by early December to allow time for processing. You must have the
cash available by December 31 to qualify.
With a
large IRA withdrawal and then gift, will the donor receive a full
deduction?
Yes, the withdrawal increases taxable income, and the gift reduces
taxable income.
Are there
other income tax limits that are affected?
Usually, for higher income taxpayers, 3% of itemized deductions are
not allowed. For cash gifts to charity between Aug. 28 and Dec. 31 of
2005, the 3% reduction does not apply. 100% of the gift is deductible.
Will
there be other income tax effects?
There may be for some people. When the adjusted gross income is
raised, deductions such as medical deductions or casualty deductions with
"floors" to the deductible amount may be affected.
Which
charities qualify for the 100% deduction?
Public charities generally will qualify.
Which
charities or gifts will not qualify?
With the new 100% gifts rule, there are several exceptions -- no
private foundation gifts, no supporting organization gifts, no donor
advised fund gifts and no gifts of property such as stock or land.
Could you
share a gift example?
Mary IRA Owner has income this year of $100,000. She has an IRA of
$4,000,000 and wants to help her favorite charity with a large gift. Mary
withdraws $1,000,000 from her IRA, and her income is now $1,100,000. She
gives the $1,000,000 to charity by Dec. 31, 2005 and deducts the
$1,000,000. Her income for tax purposes is reduced to the original
$100,000.
Questions and Answers excerpted, with permission, from Crescendo
Interactive, Inc.
