Giving From Your IRA

Giving From Your IRA

You can make a difference

Estate planners and tax advisers often recommend retirement assets as the most tax-effective asset to distribute to charity. These assets are not only vulnerable to heavy taxation as current distributions, but may also be taxed again as income on the tax returns of heirs.

A recent tax law extension permanently allows annual IRA distributions given directly to charity tax free. Americans age 70½ and up can make tax-free IRA contributions to public charities, add to existing funds or start a new fund at Humboldt Area Foundation.

You can give to the causes you care about most. You can set up a charitable fund in your name or make an unrestricted gift. Giving is one of life’s pleasures; we can help you enjoy it today.

By giving through Wild Rivers Community Foundation, you can use your gift to meet ever-changing community needs—including future needs that often cannot be anticipated at the time your gift is made. Your gift can target the causes and programs you care about most.

Wild Rivers Community Foundation understands our community’s most pressing issues and can help you establish a fund to make an impact in areas of need or opportunity that are important to you. Here are three great ways to turn your IRA into community good:

Wild Rivers Community Fund—Meeting ever-changing community needs.

Address a broad range of current and future needs. Wild Rivers Community Foundation evaluates all aspects of community well-being: arts and culture, community development, education, environment, health and human services—and awards strategic grants to high-impact projects and programs.

Field of Interest Fund—Connecting personal values to high-impact opportunities.

Target gifts to the cause most important to you: youth, arts, seniors, culture revitalization, environment and more. Humboldt Area Foundation awards grants to community organizations and programs addressing your area of interest.

Designated Fund—Helping local organizations sustain and grow.

Support the good work of a specific nonprofit organization—a senior center, museum or any qualifying nonprofit charitable organization—by creating a specially Designated Fund. Wild Rivers Community Foundation will invest your gift for long-term growth and issue grants to your favorite nonprofit on a regular basis.

Scholarship Funds

Support an annual grant to individuals to continue their education. Scholarships are offered through fair and open competitive application process. The criteria for the scholarship are defined by the donor when the fund is initially established. Per IRS regulations donors may not choose scholarship recipients. The Foundation’s administrative cost is 2% of the principal balance.

Frequently Asked Questions

Why do donors want to give IRA assets to their community foundation?

After 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. For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of non-spousal beneficiaries; heirs may receive less than 50 percent of IRA assets passed on to them through estates.

Instead, IRA holders may choose to leave their IRAs to qualified charitable organizations—choosing charity over taxes.

Which donors stand to benefit most from giving their IRAs to charity?

Because charitable IRA transfers are not included in taxable income and not available for itemized charitable deductions, these special rules may benefit many different types of individuals:

  • Generous donors—When making a major gift, some taxpayers may give more to charity than they can deduct that year. Donors cannot deduct more than 50 percent of their income for gifts of cash to public charities (30 percent, if giving to private foundations). Although amounts over 50 percent can be carried forward and deducted in future years, taxpayers will face an immediate tax bill and may lose some of the benefit of the deduction if they die before the gift has been fully deducted. Donors who consistently give above the limit will not be able to take advantage of the carry forward provisions.
  • Non-itemizers—Donors who regularly give a portion of their income to charity are not able to enjoy a tax break from the contribution because the standard deduction is still greater than the total of all itemized deductions. This may be especially true if state and local income taxes are low.
  • Financially comfortable—Individuals or couples who distribute the minimum from their IRA—and have other forms of income to pay living expenses—may find that transferring their minimum distributions to a community foundation helps fulfill personal charitable goals, tax-free.

In the past, how did the tax law treat charitable gifts made from IRAs?

Prior to 2006, IRA holders faced a disincentive for giving retirement assets to charity during their lifetimes because all withdrawals from traditional IRAs were subject to income tax. Thanks to the renewed tax provision, retirees will be able to give far more support without being penalized, doing so during their lifetimes and seeing their gifts benefit their communities.

In the past, when a donor of any age withdrew IRA funds to make a charitable gift, he or she was liable to pay income tax on the withdrawal, offset to varying degrees by a charitable deduction for the gift.

As a consequence of this unfavorable tax treatment, very few individuals donated IRA funds to charity during their lifetimes.

How has the tax law changed?

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What are the advantages of this renewed law?

The tax benefits now available to American seniors will encourage new contributions from individuals who will no longer have to pay tax on a charitable gift of IRA funds. When given through a community foundation, these contributions can support all aspects of community well-being: arts and culture, economic development, education, environment, health and human services, neighborhood revitalization and more.

Now it is easier than ever for more people to enjoy the experience of making the tax-free gift of a lifetime using their excess retirement assets.

What if a donor contributes more than $100,000 from an IRA?

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What is the itemized deduction reduction?

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Does a donor also receive a charitable deduction when he or she transfers assets to a charity under this provision?

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How will charitable distributions affect the minimum required distributions from a taxpayer’s IRA?

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Are there any IRA transfers to the community foundation that do not qualify for preferred tax treatment?

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How can an IRA gift be made?

IRAs are typically held by a financial service or trust company. These custodians will likely provide a form that could be used to transfer the IRA directly to charity, with no tax incurred.

This is not tax advice, please consult your attorney or CPA. The information provided here is based on analysis of recent legislation. Every effort has been made to ensure accuracy of the answers to these questions. However, due to the complexity of the tax law and the fact that many of these provisions introduce issues that are new to the Internal Revenue Code, this information may be subject to change. It is not a substitute for expert legal, tax or other professional counsel and we strongly encourage donors to work with their professional advisers to determine the impact of this legislation on their particular situations. This information may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

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