IRA Gifts to Charity and the Pension Protection Act 2006

President Bush is expected to sign the Pension Protection Act on August 17, 2006. The new law will allow individuals who are at least 70 ½ (date at distribution) to exclude from gross income transfers from their IRA’s to charities. They will not include the distribution in their income and they will not get a deduction on their tax return. Each individual will be able to transfer $100,000 each year in 2006 and 2007 to a charity from their IRA. A married couple could transfer $200,000 as long as each person had $100,000 in their IRA to transfer. This law is only for years 2006 and 2007. The transfer must be made directly from the IRA to the charity.

Individuals would be able to satisfy their RMD with a distribution from their IRA to a qualified charity. A donor advised fund is not a qualified charity.

This could benefit clients who are not going to itemize and taxpayers whose itemized deductions are phased out due to high income levels.

This is especially interesting relative to normal charitable gifts which are typically limited to 50% of AGI (or 30% of AGI in the case of appreciated property). For example, a couple may have 50k of Social Security and dividend/interest income plus RMDs from husband and wife totaling 120k – so total AGI of 170k. Under the current law, the largest gift that could be used to offset income in one year would be $85,000. (Unused amounts could be carried forward.) Under this new law, a couple could give 120k and not report it as income at all! (The example assumes that not more than 100k is given from any one person’s IRA.)