On December 18, 2015 President Obama signed the Protecting Americans from Tax Hike (PATH) Act, which made permanent, among other things, three rather popular charitable tax incentives were set to expire January 1, 2016. The most important provision of the PATH Act for estate planning purposes is the continued allowance of rollover of individual retirement account distribution. This particular measure came into law in 2006 as part of the Pension Protection Act as a temporary measure. It expired and brought back to life several times over in the last nine years. The measure has shown itself to be a wildly popular measure, with approximately $140 million in charitable donations in the first two years and hundreds of millions going to colleges and universities in the last nine years. It seems likely that with the permanence of the new law, charitable givings will likely increase.




There are some important rules that are necessary to satisfy in order to qualify for the tax deduction benefits. They are:


  • The IRA owners must be at least 70 and one-half years old. A person can withdrawal from their IRA at age 59 and one-half but withdrawal from the IRA is mandatory beginning at 70 and one-half. These distributions are subject to income taxes, although if the same distribution is paid directly to a qualified charity and meets the other necessary requirements, it is treated as a nontaxable income distribution.  
  • The tax deductions stop at $100,000 per year in any one calendar year. An individual can donate more, they just have to be aware that they are subject to tax liability for any additional monies withdrawn from their IRA.
  • The money must go to a qualified charitable organization. The charity cannot be a donor advised fund, supporting organization or private foundation of any sort.
  • The money can only be withdrawn from a traditional Individual Retirement Accounts or Roth Individual Retirement Accounts. Money withdrawn from a 401(k) plan, pension plan or other retirement account, such as a 403(b) plan does not qualify for tax free treatment.
  • The money must go directly from the IRA to the charity. The money has to go directly from the plan administrator to the charity.
  • There can be no gifts or other incentives flowing from the charity to the individual donor.
  • There must be a bank record or written receipt from the charities.

It is important to note that if a person makes a nondeductible contribution to their IRA during the same year as they claim benefit from the charitable rollover provisions, there is a special IRS rule treating the charitable giving to come first from taxable monies, rather than proportionally allocated from taxable and nontaxable monies. It is further important to note that the mandatory minimum distributions from the IRA can be paid directly from the plan administrator to the charity and still qualify as a non-taxable distribution. Failure to withdrawal the mandatory minimum distribution could result in a penalty of up to 50%. The downside, minimal as it is, is that the donor loses his/her right to deduct their charitable contributions, assuming they itemize in the first place.

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