Tax Law Developments: Charitable IRA Rollover Made Permanent

 Posted on April 22, 2016 in Taxation Law

As part of a trillion-dollar spending package enacted in the eleventh hour last December, averting yet another threatened government shutdown, the Congress made permanent dozens of expired or expiring tax incentives.

Among these was the so-called charitable IRA "rollover."

First enacted in 2006 as a temporary measure, this incentive had been repeatedly allowed to expire and then extended retroactively, impairing its effectiveness as a fundraising tool for charities. It is now a permanent feature of the tax Code.

The charitable IRA "rollover" allows a taxpayer aged 70-1/2 or older to direct up to $100k per year from individual retirement accounts to public charities, without taking these distributions into income.

These distributions do not count against the limitation on the deductibility of charitable contributions, 50 percent limitation of adjusted gross income, but they do count toward your minimum required IRA distribution.

The strategy is especially attractive where the minimum required distribution would otherwise push you over the threshold at which the "Pease" limitation on itemized deductions takes hold - $259,400 for a single taxpayer in 2016, or $311,300 for a married couple filing jointly - or the 3.8 percent surtax on net investment income - $200,000 single, $250,000 joint.

There has been talk for several years of extending the charitable IRA "rollover" to taxpayers aged 59-1/2 or older for gifts to fund split interest trusts or gift annuities, and raising the ceiling to $400,000 or even higher, but these ideas have not yet cleared the Congressional tax writing committees.

There is a bipartisan bill pending that would allow rollovers to donor advised funds, but again, this has not yet been reported for floor action.

If you would like to discuss whether this tax planning strategy could work for you - there are technical requirements it is easy to get wrong - please contact us.