Congress did not leave much time for taxpayers to make a decision on a charitable individual retirement account (IRA) rollover. That provision along with around 50 over tax breaks were only extended through December 31, 2014. The President still has to sign off on the one-year tax extensions, but he is expected to sign it into law this week.

What is a Charitable IRA Rollover?

Charitable IRA rollovers were allowed starting in 2006. IRA holders age 70 ½ or older can exclude up to $100,000 of taxable income if IRA distributions are paid directly to qualified public charities. The legislation was enacted to encourage older taxpayers to charitably give out of their IRAs.

What are the Tax Benefits?

Age 70 ½ is also the time the IRS requires withdrawals (required minimum distributions) from IRAs even if the owner does not need the funds. Charitable IRA rollovers allow taxpayers who have to take a required minimum distribution to donate those funds directly to charity. The donation is removed from income so they do not have to pay taxes on the distribution. This is also a good strategy for taxpayers who normally cannot itemize their deductions and take advantage of the charitable deduction.

The one-year tax extender bill is applied retroactively to any charitable IRA rollovers made earlier in the year and to those made through the end of the year. If this is something you may be interested in pursuing we recommend reaching out to the manager of your IRA as soon as possible.

2015 and Future

A bill was originally introduced to make these rollovers permanent legislation, but it was discovered that the President would have vetoed it. There is still debate on which tax extenders to make permanent without increasing the national deficit. For now, the extended provisions are only through December 31, 2014. One provision of a bill over the summer that did not get passed, but may appear in the future, is the “charitable giving extension”. This would allow taxpayer’s to make charitable gifts up until April 15th that would be deductible on the previous year’s tax return. That would be a very interesting tax planning strategy that we will monitor in 2015.