New Tax Law Affects IRAs

Contact: Pam Seay, Vice President for Advancement
(804) 342-9681 email: pam_seay@vahistorical.org

NEW TAX LAW AFFECTS IRAs

President Bush Signs H.R. 4; 2-year IRA Charitable Rollover is Now Law

Richmond, VA – On August 17 President Bush signed into law the Pension Protection Act of 2006. This bill contains a two-year IRA Charitable Rollover provision that will allow people age 70 ½ or older to exclude up to $100,000 from their gross income for a taxable year for cash gifts made directly to a qualified charity.

How does the IRA rollover differ from past tax treatment? Prior to PPA 2006, a donor had to report a withdrawal from an IRA as income and then declare an offsetting income tax deduction for the charitable contribution. Due to a variety of tax rules, including deduction limitations and phase-outs, the net effect of increasing income and then declaring a deduction represented an increase in taxes for many donors.

To qualify for IRA rollover treatment, the donor must direct the IRA manager to transfer funds directly to the charity. A withdrawal followed by a contribution will still have to be reported as income. The donor must be at least 70 ½ and the donee must be a tax-exempt organization to which deductible contributions can be made. Donor-advised funds and supporting organizations are not eligible. The gift must be outright; rollovers to a planned gift, such as a gift annuity or a charitable remainder trust, do not qualify—neither do outright distributions to charity from employer-sponsored retirement plans, such as Simple IRAs, 401(k)s, and 403(b)s. The provision is effective only through December 31, 2007.

The new legislation offers a welcome incentive to donors who want to use the money in their IRAs to make charitable gifts.

Although a private, non-profit institution, the Virginia Historical Society (VHS) is the official state historical society of Virginia. The VHS is located at 428 N. Boulevard. The Story of Virginia, An American Experience, a 10,000-square-foot exhibition with more than a thousand objects covering all of Virginia history from prehistoric times to the present, is featured in the Robins Center for Virginia History. Hours: Monday–Saturday 10am–5pm and Sunday 1pm–5pm (Museum Galleries only). Admission: $5/adults, $4/seniors 55+ ($2/Tuesdays–galleries only), $3/children and students, free/members. Admission to the galleries is free on Sundays. For group tour information, call (804) 342-9652. For more information, please call (804) 358-4901 or visit www.vahistorical.org.