Law Allowing Tax-Free Charitable Transfers from IRAs Extended

October 13, 2008 (Syracuse, NY) – As part of the Emergency Economic Stabilization Act of 2008, the U.S. House of Representatives passed a two-year extension of the Charitable IRA legislation, making it easier for Americans to give to causes they care about. The Charitable IRA provision, first enacted for 2006 and 2007, has the power to help local charities weather the current economic crisis. The extension goes through 2009.

In these financially turbulent times, millions of Americans continue to save pre-tax dollars in individual retirement accounts (IRAs). Thanks to regular investments and long-term returns, an estimated $4.7 trillion is invested in IRAs. The law allows taxpayers 70 ½ and older to share the wealth by giving retirement savings directly to charity—and bypassing income tax.

This law is a boon to local charities that are experiencing the effects of a tough economy. The tax benefit expires December 31, 2009.

Thanks to 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. Charitable individuals and couples have expressed an interest in giving the funds to charity, but the income tax that must be paid on all withdrawals reduces the value of the gift. Others are concerned about designating their children as IRA beneficiaries, since that may draw unintended tax consequences.

A provision in the new federal law extends an option: transferring IRA assets directly to charity. By going directly to a qualified public charity such as the Central New York Community Foundation, the money is not included in the IRA owner’s income and—most important—is not taxed, preserving the full amount for charitable purposes.

During 2008 and 2009 only, holders of traditional IRAs who are at least 70½ years old can make direct charitable transfers, free from federal tax from separate accounts, of up to $100,000 per year for individuals and $200,000 for couples. The Central New York Community Foundation can help donors execute the transfers and choose from several charitable fund options for their gift. Unfortunately, Donor Advised Funds do not qualify for tax-free IRA transfers.

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