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WHY IS THE IRA ROLLOVER IMPORTANT TO YOU?

WHY IS THE IRA ROLLOVER IMPORTANT TO YOU?. Presented by: Evelyn Gwin Mangan Blackwell Sanders LLP October 2007. PRE-PENSION PROTECTION ACT.

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WHY IS THE IRA ROLLOVER IMPORTANT TO YOU?

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  1. WHY IS THE IRA ROLLOVER IMPORTANT TO YOU? Presented by: Evelyn Gwin Mangan Blackwell Sanders LLP October 2007

  2. PRE-PENSION PROTECTION ACT Charities benefit at Donor’s death from being the beneficiary of an IRA, as opposed to the recipient of a donation from the estate of the deceased Donor, because the charity is exempt from income tax. The lifetime tax savings strategy for Donors was essentially limited to the charitable deduction with leveraging by the gifting of appreciated property to save capital gains tax.

  3. PENSION PROTECTION ACT OF 2006 For 2006 and 2007 only-- Allows direct contribution from IRA to charity qualifying under Section 170(b)(1)(A). Legislation pending in both House and Senate to extend.

  4. REQUIREMENTS TO USE CHARITABLE DISTRIBUTION • Donor must be at least 70 ½ • The check must be issued to the charity from the custodian • Contribution may not exceed $100,000 per person per year. • May be used to satisfy the required minimum distribution (RMD). • Effective only for 2006 and 2007.

  5. EFFECT OF CHARITABLE DISTRIBUTION • Transfer satisfies RMD for the year. • Distribution is not included in gross income. • Donor receives no charitable deduction. • Charity receives 100% of the distribution with no reduction for taxes.

  6. ELIGIBLE ACCOUNTS • Traditional IRAs (408(a)) • Inherited IRAs as long as the beneficiary is 70 ½ • Rollover IRAs • IRA retirement annuities (408(b)) • Qualified trust (employees’ trust under 401(a)) • Annuity described in 403(a) • Deferred compensation plan under 457(b) if maintained by an eligible employer

  7. INELIGIBLE ACCOUNTS • Active SIMPLE or SEP accounts. • Roth IRA--because the distributions are not includible in gross income. However, withdrawals made from a Roth and donated to charity do qualify for the charitable deduction. • 401(k) and 403(b) accounts

  8. ELIGIBLE CHARITIES Organizations which qualify for the charitable deduction under 170 (b)(1)(A)

  9. INELIGIBLE CHARITIES • Supporting organizations under 509(a)(3) • Private foundations • Donor-advised funds (4966(d)(2))

  10. ELIGIBLE GIFTS Outright charitable donation for which nothing of value is received.

  11. IS THE CHARITABLE DISTRIBUTIONFOR EVERYONE?WHO BENEFITS? • Donors who do not need the income generated by their RMD. • Donors whose deductions are limited by the 50% of gross income rule. • Donors whose deductions on Schedule A are subject to phase-out or who are not eligible to itemize deductions.

  12. WHO DOES NOT BENEFIT? • Those who itemized deductions are not limited. • Those who would benefit from making gifts of appreciated property.

  13. COMPLIANCE REQUIREMENTS FOR THE CHARITY Substantially similar to the requirements for acknowledgment of other charitable gifts. The acknowledgment must include: • Date and amount of the distribution • Name of the IRA custodian • Amount of the gift and that the gift is a qualified charitable distribution under 408(d)(8)(A) • Statement that no goods or services were provided in exchange for the gift.

  14. OPPORTUNITIES FOR CHARITIES • Acceleration of satisfaction of existing pledges. • If the provision is extended, the opportunity to encourage planned gifting using the charitable distribution. • Capitalize on the tax advantages for Donors.

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