Congress Gives an Early Christmas Present: Charitable IRA Rollover

By: Stephen C. Hartnett, J.D., LL.M., Associate Director of Education, American Academy of Estate Planning Attorneys

Congress gave us an early Christmas present by passing permanent Charitable IRA rollover legislation, the Protecting Americans from Tax Hikes (PATH) Act of 2015. In the past, Congress would pass such legislation, but it would only be effective for that year. Typically, Congress would pass the legislation just before the holidays, and it would be effective only through the end of the year. So, taxpayers would need to scramble to take advantage of the “gift.” This time, Congress made it applicable for 2015 and all future years.

How does it work?

With the Charitable Rollover IRA, a taxpayer may make a contribution to a public charity directly from their IRA (or Roth IRA). (A 401k or other retirement plan is not eligible unless it is first rolled into an IRA.) The taxpayer must be at least age 70 ½ at the date of the contribution. The contribution may not exceed $100,000 and is made directly by the custodian to the charity.

Why is this better?

Without the legislation, the taxpayer first would need to recognize the income of the IRA and then would have to qualify for the charitable deduction. That could have several problems:

  • The taxpayer may not be itemizing, so may not be benefitting from charitable deductions
  • The taxpayer may have high income resulting in a haircut of itemized deductions
  • Recognizing the income from the IRA may push the taxpayer into higher income tax brackets or the 3.8% surcharge under the Affordable Care Act

With the legislation, it is quite simple. The taxpayer (who is over age 70 ½) simply directs the custodian to make the charitable contribution. The portion of the IRA so contributed (up to $100,000) never comes into income (nor is there a deduction, of course).

Happy Holidays!!

I hope all of you have a wonderful holiday season. If you are travelling to see loved ones, I hope your travels are safe and easy.

Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128