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Giving From Your IRA (January 2013)

The following article was written by William R. Gustoff, JD, Executive Vice President of Thompson & Associates, a company with which the Riverside HealthCare Foundation works to provide complimentary estate planning services. The intent is to provide helpful explanation and is not intended to replace your personal consultation with your accountant, attorney, or other professional.

As most of those reading this know, the Pension Protection Act of 2006 added an “IRA Charitable Rollover” provision to the tax code allowing IRA owners age 70½ and older to make a “qualified charitable distribution” (“QCD”) up to $100,000 each year.  Although it was extended many times (including very late in 2010 for the years 2010 and 2011) it was never extended for 2012.  The opportunity for charities to use the IRA Charitable Rollover was lost for 2012—or so we thought!

Anyone watching television, listening to radio, or reading the news online or in print knows Congress worked over the New Year holiday to avert the so-called “fiscal cliff” from impacting our country and our economy when business started on January 2, 2013.  Just after 11:00 pm on January 1, 2013, the House of Representatives passed the American Taxpayer Relief Act of 2012 (“ATRA”) that had been passed by the Senate about 20 hours prior.  President Obama promised immediately to sign the ATRA, and did so via autopen late January 2, 2013.

The good news for charities is that the ATRA not only extends the IRA Charitable Rollover for 2013, but the provision applies retroactively for 2012 with a limited expansion for the time to make use of it. There are three categories of potential donors who can make use of this new provision:

  1. Proactive Optimists.  Some donors made QCDs directly from their IRA custodian to charities in 2012 hoping that the IRA Charitable Rollover would be reinstated with a retroactive provision.  They were right!  Direct payments from an IRA made any time in 2012 that would have been a QCD under the old IRA Charitable Rollover rules will be a QCD under the new rules for 2012.[1]
     
  2. Patient Patrons.  Individuals who did not make a QCD in 2012 may do so prior to February 1, 2013.[2]  This is similar to the provision in the 2010 tax law that allowed a donor to make a QCD in January of 2011 for the 2012 tax year and a second QCD in the remaining 11 months for 2011.  A generous donor who did not make a QCD in 2012 may make two QCDs in 2013 of up to $100,000 each. 
     
  3. Faithful Holdouts.  Many potential donors had held off hoping to make a QCD in 2012, but took the required minimum distribution (“RMD”) from their IRAs in December of 2012 when it looked like all hope for the IRA Charitable Rollover was lost.  And who can blame them?  I don’t know of anybody who predicted a bill passed in 2013 would allow for QCDs to apply to the 2012 tax year, or especially to count as the RMD required of them in 2012!  But, Congress delivered a surprise, and these donors may now write checks to your organization during January of 2013, and that gift will count as a 2012 QCD that also satisfies the donor’s 2012 RMD.  Here is an example to illustrate:

Example:  Jane Donor took her RMD of $25,000 on December 20, 2012.  On January 15, 2013, she sends a $10,000 check to your organization.  Jane will be able to treat the $10,000 gift as an IRA Charitable Rollover, excluding that portion from her income for 2012.[3]

 

[1] The ATRA accomplished this at Section 208(a) by striking the deadline of December 31, 2011, for making IRA Charitable Rollovers and replacing it with a deadline of December 31, 2013.

[2] Section 208(b)(2)(B) of the ATRA provides that “any qualified charitable distribution made after December 31, 2012, and before February 1, 2013, shall be deemed to have been made on December 31, 2012.”

[3] Section 208(b)(2)(B) of the ATRA provides that “any portion of a distribution from an individual retirement account to the taxpayer after November 30, 2012, and before January 1, 2013, may be treated as a qualified charitable distribution to the extent that… such portion is transferred in cash after the distribution to … [a qualifying organization] before February 1, 2013,” provided the cash distribution would otherwise have met the IRA Charitable Rollover requirements if not initially paid to the taxpayer.