Congress has just passed and the President has signed the legislation to avoid the combination of automatic tax hikes and spending cuts that has been commonly referred to as the Fiscal Cliff. That legislation contains many additional provisions including an extension of what many people call IRA charitable rollovers for all of 2012 and all of 2013.
These are referred to in the tax code as “Qualified Charitable Distributions.”
In a special provision, the law now allows an individual to make a gift in January of 2013 and have it count as a 2012 distribution. So a qualified individual can make a gift in January and have it count as a 2012 gift or as a 2013 gift.
Here are the general rules related to Qualified Charitable Distributions:
Basic Requirements: Who can do this?
The individual must be at least 70 ½ years of age. This should not be confused with the IRA distribution requirements that start in the year following the year in which an individual turns 70 ½. They must be 70 ½ now. So, if today is January 7, 2013 – the individual should have been born on or before July 7, 1942 in order to do this.
What Kinds of Retirement Plans are Included?
The rollover must be from an IRA or a Roth IRA. It cannot be done from a 401(k), 403(b), Keough, or other qualified plan. Typically, an individual can roll over amounts from these plans to an IRA, and that step will be necessary if they wish to do this.
What is the Maximum Amount?
The amount cannot exceed $100,000.
What about the Minimum Required Distributions?
A Qualified Charitable Distribution can include the Minimum Required Distribution (MRD). So, for example, if Joe has to take a MRD of $20,000 and instead makes a Qualified Charitable Distribution of $20,000 to the University of Wisconsin Foundation – he has fulfilled the MRD requirement and does not need to take that distribution as well.
How Should these Gifts be Made?
The administrator or custodian of the IRA should make the check payable to the charity and deliver the check directly to the charity. They should not make the distribution to the IRA holder and let the holder deliver funds to the charity. If they do, this cannot be treated as a Qualified Charitable Distribution.
Restrictions: What Kind of Organization can Receive this Rollover and What Kind of Restrictions are Involved?
It must be an outright gift – it cannot be to a charitable remainder trust, gift annuity, pooled income fund, donor advised fund, or supporting organization. There can also be NO quid pro quo involved (so it cannot be used for preferential athletic seating contributions, golf outings, events, raffles, or anything else that would give a benefit back to the donor).
Please note that the University of Wisconsin Foundation is NOT a supporting organization organized under 509(a)(3). The University of Wisconsin Foundation is a publicly supported charitable organization under 509(a)(1) of the code and can receive IRA rollover distributions.
Special rule for IRA Distributions made to the IRA owner in December, 2012:
If you took a distribution or your required minimum distribution in December of 2012, and if you would have done this as a Qualified Charitable Distribution if that option had been available, there is a special transition rule in place. If you transfer some portion or all of the distribution to a qualified charitable organization before February 1, 2013 – you will be able to claim this as a Qualified Charitable Distribution on your tax return. The IRS has not yet indicated what evidence you will need to include on your tax return to verify this treatment, but the legislation specifically authorizes this treatment of the distribution.
You must contact your IRA custodian in order to make arrangements to do this. There is no universal format, but they will want something in writing from you to authorize the Qualified Charitable Distribution. In addition, the University of Wisconsin Foundation has, in the past, received checks from IRA custodians without any identifying information on the individual making the distribution. Please send the information to the Foundation noting the identity or your custodian, the amount you are giving from the IRA, and any designation you wish to make on the use of your gift.