Background – The IRA Charitable Rollover has been around now for a few years.  It allows individuals 70½ and older to exclude from their taxable income IRA distributions of up to $100,000 as long as the distributions are transferred directly from the IRA to a charity. The law allowing this opportunity expired on December 31, 2013 and discussion in Washington throughout 2014 has focused on its reinstatement. The House of Representatives and the Senate each had somewhat different versions under consideration throughout the year and this delayed the passage of a Bill. That changed this week.

This Week’s Development – On Wednesday, December 17, the U.S. Senate passed a Bill that had already cleared the House of Representatives. It is known as the “Tax Increase Prevention Act of 2014” (H.R. 5771).  Its purpose is to retroactively renew many expired or expiring tax provisions commonly known as tax extenders – and, the good news is that the Bill includes an extension of the Charitable IRA Rollover – but, only through December 31, 2014. 

It is expected that the Bill will be presented very soon for the President’s signature.  The consensus among Washington insiders is that the President is likely to sign the Bill into law.  On the other hand, as a practical matter, if the Act is not signed soon it won’t be worth the ink with which it’s signed.

What To Do Next – Because there will be precious little time to act once the Act is signed, the most useful action step would be to identify the donors you have who have taken advantage of the Charitable IRA Rollover in the past and reach out to them as soon as the President signs the Bill to encourage them to take advantage of this opportunity before December 31, 2014.

Please Note – These Qualified Charitable Distributions from IRAs are not tax deductible; but, they do offer donors substantial advantages:

• The distributions are not included in the donor’s taxable income.
• The amounts distributed to charity count toward the donor’s Required Minimum Distribution amount.
• The distributions reduce the principal in the IRAs, effectively reducing the tax impact of distributions in future years.

Also, a few other things to keep in mind –

• Donors who have already withdrawn their 2014 Required Minimum Distributions cannot re-characterize those distributions as Qualified Charitable Distributions, even if they subsequently write a check for an equal amount to a charity.
• But, a donor can still make a 2014 Qualified Charitable Distribution even if the donor has already taken a 2014 Required Minimum Distribution.
• The distribution to the charity must be delivered to the charity by the IRA’s Administrator on or before December 31, 2014. If the payment is sent by mail, the postmark will determine the delivery date; if the payment is sent electronically, delivery will be determined by the date the funds reach the charity’s account.
• For some donors, the reinstatement of this law may be something they anticipated earlier in the year and already acted on. That is, if a donor arranged for a direct transfer to charity earlier in 2014 in anticipation of reauthorization by Congress, and the transfer met all the law’s requirements, it will qualify as a Qualified Charitable Distribution under the renewed provisions.
• One thing this Bill does not do is allow for distributions made in January/February 2015 to be considered to have been made in 2014.

Below is draft language you can adapt for an e-mail communication with your donors, in the event that the Bill is signed into law by the President.  If you have questions about this language, please contact me.

Sample Language for an e-mail to Donors – 

As you might have heard, the President recently signed the Tax Increase Prevention Act of 2014 into law.  Among its provisions, the law extends the Charitable IRA Rollover for 2014.  This means that individuals age 70 ½ or older are authorized to make tax-free distributions from their Individual Retirement Accounts (IRAs) of up to $100,000 to qualified charitable organizations.  While these Qualified Charitable Distributions are not tax deductible, they do offer substantial advantages. The distributions are not included in your taxable income and they can also count as the your Required Minimum Distribution for 2014.

There are several important things to know about Charitable IRA Rollover in 2014:

(1) To qualify, the distribution to charity must be delivered to the charity by the IRA’s Administrator on or before December 31, 2014.

(2) If you made a direct distribution from your IRA to a qualified charity earlier in 2014 in anticipation of reauthorization by Congress, that distribution (up to $100,000) will count as a Qualified Charitable Distribution as long as all other requirements are met.

(3) Required Minimum Distributions already withdrawn from your IRA in 2014 cannot be re-characterized as Qualified Charitable Distributions, even if you write a check to a charity in an equal amount.

If you have any questions please do not hesitate to contact us at [insert your contact information].

We wish you a happy and healthy holiday season – and, we thank you for your support!

Final Thoughts – Hope this information is helpful. If you have a question, or need more information, please do not hesitate to contact me (tsudol@bobcarterco.com).

My appreciation to my friend, Dick Kellogg, CEO of Future Focus, for his contribution to this report.