Will IRA Charitable Rollovers Finally Be Made Permanent?
Charities, universities & wealthy IRA owners hope it will happen.
Mike Fassi, CLU, CHFC
A great idea is hard to dismiss. Congress failed to extend the IRA charitable rollover provision into 2014. That took a terrific charitable gifting option off the table, a potential win-win for both non-profits and wealthy households with large IRAs.1
The IRA charitable rollover let traditional and Roth IRA owners age 70½ or older gift up to $100,000 of IRA assets to charity without the distribution being recorded as taxable income. In some years, owners of traditional IRAs were allowed to count these gifts toward required minimum distributions (RMDs).1,2
The sun has set on the IRA charitable rollover four times now. Still, charities and tax analysts hold out hope that it will return for 2015. Their optimism may be justified – some encouraging signals are already coming from Capitol Hill.2
Lawmakers may come through at the last minute again. Conrad Teitell, the Connecticut estate planning attorney who spearheaded the IRA charitable rollover concept, thinks that lawmakers will reinstate the provision after the November election. While that is hardly ideal for tax planning purposes, it is better than no action at all.1
They may even “turn back the clock” for tax planning purposes. In August, Teitell told MarketWatch that if Congress revives charitable IRA gifts for 2015, it will also probably make them retroactive for 2014. That presumption has basis in fact, as Congress has never failed to restore the IRA charitable rollover without making it retroactive for the previous year.1
A new bill promises to be proactive as well as retroactive. In the best-case scenario, H.R. 4719 becomes law. In July, this bill to revive the IRA charitable rollover passed in the House of Representatives by a vote of 277-130. If made law, H.R. 4719 would make the IRA charitable rollover provision permanent, and it would also give IRA owners more flexibility – it would let donors deduct gifts made by April 15 of the following tax year on the prior year’s federal tax return. (H.R. 4719 would put this April 15 extension into play for all forms of charitable gifting, not just IRA donations.)3
For the record, the Senate Finance Committee greenlighted a bill in April that would revive the IRA charitable rollover for 2015 and make it retroactive for 2014 – a decent alternative to the House version of the legislation, but not as ambitious.3
Is there any chance of a life income arrangement option? The hope persists that H.R. 4719 could be revised to include one. A life income arrangement, fairly common in the world of planned giving, allows a donor to receive a (taxable) lifelong income stream as a byproduct of his or her charitable donation. Imagine how popular that choice could become if it was permitted as part of a charitable IRA gift. With all the anxieties over Social Security’s future, another option for pension-style income would quickly be welcomed.
Ideally, a life income arrangement option would be structured to let an IRA owner make a charitable IRA gift before age 70½. As Forbes notes, it would be handy to have the ability to make the IRA gift at age 59½ with the money being rolled into an lifetime income contract between the donor and the charity, or into a charitable remainder trust that would last for a specific period.3
Don’t count the IRA charitable rollover out yet. Wealthy IRA owners who can live without the income resulting from their RMDs want it back, as it may help them save thousands in federal taxes. Charities are also clamoring for its return. Lawmakers in our nation’s capital appear to be listening.
Mike Fassi, CLU, CHFC is a Representative with Centaurus Financial Inc. and may be reached at Fassi Financial, 970-416-0088 or firstname.lastname@example.org.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – blogs.marketwatch.com/encore/2014/08/12/will-retirees-get-their-ira-tax-break-back/ [8/12/14]
2 – pgcalc.com/about/featured-article-february-2014.htm [2/14]
3 – forbes.com/sites/ashleaebeling/2014/07/18/4-charitable-giving-tax-breaks-in-play/ [7/18/14]