IRA Charitable Rollovers
With the passage of The American Taxpayer Relief Act of 2012, Congress has reinstated the tax-free IRA Charitable Rollover for the 2012 and 2013 tax years. This provision allows individuals age 70½ and older to make direct transfers totaling up to $100,000 per year to 501(c)(3) organizations, without having to count the transfers as income for federal income tax purposes.
Commonly Asked Questions
Q. Is it too late to take advantage of this for the 2012 tax year?
A. Not if you act quickly.
- You can make tax-free gifts of up to $100,000 from a traditional IRA until Jan. 31, 2013, for tax year 2012.
- Individuals who received IRA distributions after Nov. 30, 2012, but before Jan. 1, 2013, can transfer those amounts in cash to Harvey Mudd College before Feb. 1, 2013, and the distributions will be treated as rollovers for tax year 2012.
- If you anticipated the return of the IRA rollover in 2012 and made a qualified gift to the College directly from your IRA between Jan. 1, 2012, and Dec. 31, 2012, that gift will be treated as a rollover.
- IRA gifts for tax year 2013 can be made until Dec. 31, 2013.
- If your spouse has a separate IRA account, she/he also may make a gift of up to $100,000 for each tax year.
Q: What is the procedure to execute an IRA charitable rollover?
A: Contact your plan provider to learn their procedure for initiating a rollover. Please send the College a copy of your letter of instruction to your plan provider so we can promptly and appropriately identify and credit your distribution when it is received. The information we need to do so is:
- The date you asked your plan provider to make the transfer.
- How you would like the College to designate the distribution (e.g., annual unrestricted gift, annual scholarship)
- The name(s) of the donor(s) to be acknowledged and thanked.
Q: Who qualifies?
A: Individuals who are age 70½ or older at the time of the contribution (you must wait until the date that you are 70½ to make the transfer).
Q: How much can I transfer?
A: Up to $100,000 per individual per year may be transferred.
Q: From what accounts can I make transfers?
A: Transfers must come from your IRAs directly to HMC. If you have retirement assets in a 401(k), 403(b), etc., you must first roll those funds into an IRA, and then you can direct the IRA provider to transfer the funds from the IRA to HMC.
Q: Can I use the rollover to fund life-income gifts (e.g., charitable gift annuities, charitable remainder trusts)?
A: No, life-income gifts are not eligible.
Q: Can I use the rollover to support a particular purpose at HMC?
A: As with all other gifts, you can direct your IRA Charitable Rollover gift as you see fit. (Be sure to check with HMC to confirm that your gift can be used to support your specific philanthropic priorities.)
Q: How will HMC count the gift?A: HMC will give you full credit for the entire gift amount.
Q. I have two charities I want to support. Can I give $100,000 from my IRA to each?
A. No. Under the law, you can give a maximum of $100,000. For example, you can give each organization $50,000 this year or any other combination that totals $100,000 or less. Any amount of more than $100,000 in one year must be reported as taxable income.
Q. My spouse and I would like to give more than $100,000. How can we do that?
A. If you have a spouse (as defined by the IRS) who is 70½ or older and has an IRA, he or she can also give up to $100,000 from his or her IRA.
Q. I have several retirement accounts—some are pensions and some are IRAs. Does it matter which retirement account I use?
A. Yes. Gifts can be made from IRAs only. Pension, profit sharing, 401(k), 403(b) and other forms of retirement funds do not fall under the new legislation.
Q: What are the tax implications to me?
A: You do not recognize the transfer to HMC as income on your federal taxes, provided the transfer goes directly from the IRA provider to HMC. However, you are not entitled to an income tax charitable deduction for your gift. Each state has different laws, so you will need to consult with your tax advisor to determine the impact on your state taxes.
Q: Does this transfer qualify as my minimum required distribution?
A: Once you reach age 70½, you are required to take minimum distributions from your retirement plan(s) each year, according to a federal formula. IRA charitable rollovers count toward your minimum required distribution for the year.
Q: How do I know if an IRA charitable rollover is right for me?
A: There are several things to consider.
- You are at least age 70½ and you do not need the additional income necessitated by the minimum required distribution;
- Or, your charitable gifts already equal 50 percent of your adjusted gross income, so you do not benefit from an income tax charitable deduction for additional gifts;
- Or, you do not itemize deductions.
Q. I've already named your organization as the beneficiary of my IRA. What are the benefits if I make a gift now instead of after my lifetime?
A. By making a gift this year of up to $100,000 from your IRA, you can see your philanthropic dollars at work. Watch your philanthropic support take shape and make an immediate impact on Harvey Mudd College. You also can fulfill any outstanding pledge(s) you may have made previously by transferring that amount from your IRA under this legislation, as long as it is $100,000 or less for the year.
Note: Please consult your tax professional/advisor and IRA plan administrator if you are considering making a gift under this extended legislation. Feel free to contact Dan Macaluso, vice president for college advancement, at 909.607.7069.