Individual Retirement Accounts have become an increasing important tool for retirement savings and tax planning, one of which is the charitable IRA rollover enacted as part of the Pension Protection Act of 2006. It’s one of those niche tax laws that only apply to a few taxpayers. And it has a very short shelf life – 2006 and 2007. It took the charitable community 10 years of active lobbying for Congress to change the law to provide tax benefits for transfers from retirement plans to charities.
It’s complicated, but in brief, the Pension Protection Act of 2006 allows donors to exclude up to $100,000 per year in gross income for what would otherwise be a taxable distribution from traditional IRAs and Roth IRAs for “qualified charitable distributions”. The new tax benefit is only good for 2006 and 2007 if made by an IRA owner who is at least 70½ years old on the date of the distribution to the charity.
As with all tax laws, there is lots of fine print. Marc D. Hoffman, Editor-In-Chief of the Planned Giving Design Center, provides an excellent guide to the new law in question and answer format in his article, The Pension Protection Act of 2006: A Guide to Charitable IRA Rollovers.