DECEMBER 23, 2015

Special tax bill includes extended help for charities with tax-free charitable transfers from IRAs

PHOENIX – On December 18, President Obama signed into the law Protecting Americans Against Tax Hikes (PATH) Act of 2015, which renews and makes permanent the Charitable IRA provision of 2006, making it easier for Americans to give to causes they care about. This provision has the power to help local charities strengthen their communities by allowing individuals to roll over up to $100,000 annually from an Individual Retirement Account (IRA) to charity without being federally taxed.

The bill was passed by the House and Senate in recent days. Millions of Americans continue to save pre-tax dollars in their IRAs. The law allows taxpayers 70 ½ and older to share their wealth by giving retirement savings directly to charity—and bypassing income tax. This law is important to local charities operating as agents of philanthropy in order to continue to build community and improve social service programs that benefit people every day.

“It is a win-win—for people who want to give to charity and for the nonprofit organizations they choose to support,” said Steve Seleznow, President & CEO of the Arizona Community Foundation. Thanks to decades of deliberate saving, some of today’s retirees have more money in their IRAs than they need for daily living expenses and long-term care. Charitable individuals and couples have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which reduces the value of the gift. Others are concerned about designating their children as IRA beneficiaries, since that may draw unintended tax consequences.

For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries. Experts estimate heirs may receive less than 50% of IRA assets that pass through estates. A provision in the federal law extends this special option: transferring IRA assets directly to charity. By going directly to a qualified public charity such as the Arizona Community Foundation, the money is not included in the IRA owner’s income and—most important—is not taxed, preserving the full amount for charitable purposes.

Because the IRA transfer is an outright gift, it cannot go to a donor-advised fund or supporting organization over which the donor has advisory privileges. The gift can go to a field of interest fund addressing specific causes (such as the arts, the environment, animal welfare, scientific research, or education, as examples), to a fund designated to support a particular charity in perpetuity, the ACF General Scholarship Fund, or the unrestricted Fund for the Common Good.

Interested donors can call the Arizona Community Foundation for advice on taking advantage of this new law for both the 2015 and 2016 tax years: 602.381.1400.