Time Running Out For Transfers To Charities


Last year, the Pension Protection Act of 2006 drew a lot of attention for its efforts to strengthen the private pension system.

But this legislation contained a number of other provisions -- one of which, in particular, may be of great interest to you if you are over 70-1/2 and you'd like to make a sizable contribution to a charity.

Specifically, the Pension Protection Act allows you to transfer money from your traditional or Roth IRA to a charitable organization.

You can donate up to $100,000 per year, and the IRA distribution will be tax-free. (If you are married, and your spouse also has an IRA, the two of you can contribute up to $200,000.)

However, if you're interested in making this move, you'd better act fast, because the ability to make these transfers expires at the end of 2007.

Apart from providing you with a tax-advantaged way to make sizable charitable contributions, the IRA provision of the new pension laws gives you some added flexibility in another area: required minimum distributions (RMDs).

As you may know, once you turn 70-1/2, you have to start taking distributions from your traditional IRA -- whether you need the money or not. And these distributions will be taxable. (The required minimum distribution rule does not apply to Roth IRAs.)

But, the provision allowing you to transfer IRA distributions to charities can help you meet the RMD requirement.

For example, if you are required to withdraw five percent from your IRA for 2007, you can send the entire amount to a charity to satisfy the RMD requirement -- and your distribution will be tax-free.

The IRA-to-charity provision may also benefit you if you aren't planning to itemize deductions on your tax returns.

That's because your IRA distribution will eliminate the need to claim a charitable deduction.

On the other hand, if you are close to "maxing out" on your income tax deductions because you are bumping up against the rule limiting deductions to 50 percent of your adjusted gross income, you might find that the IRA transfer rule can help you give more to charities than you would otherwise be able to make.

Review retirement income before taking action

Clearly, the IRA-to-charity transfer can benefit you as far as making tax-advantaged contributions to support the charitable organizations of your choice.

But, before you decide to send your IRA distributions to a charity, make absolutely sure you won't need the money to help support your retirement lifestyle.

Your financial adviser can help you review your income needs and the various sources of income you can count on.

You'll also need to consult with your tax adviser before you choose to send your IRA distributions to a charity. This move may well benefit your tax situation, but keep in mind that everyone's situation is different -- so get the professional guidance you need before making a move.

Once you've met with your financial and tax advisers and you've determined that a charitable IRA rollover is appropriate for you, don't wait too long to act.

No one can predict future legislation, but, as of now, the clock is ticking on your ability to make this type of transfer.

So, if this action sounds like something that would interest you, contact the charity you wish to support for the paperwork you'll need -- and get the ball rolling.

-- Scott Flake is a licensed financial adviser with the firm of Edward Jones. He hosts a weekly informal investment discussion on Tuesdays at 10:00 a.m. at his office at 411 S. Beeline Highway, Suite B. For more information, call him at (928) 468-1470.

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