Retiree donors chilling
By Joel Dresang
An expired tax break that helps retirees and charities has lost another chance to be reinstated.
The so-called qualified charitable distribution – which let taxpayers older than 70½ donate directly from their retirement accounts tax-free – was part of the jobs bill recently put on ice for the third time in the U.S. Senate.
“At this point in time, it doesn’t look good,” Bob Landaas, president of Landaas & Company, said of the provision, which began in 2006 and expired at the end of 2009.
“We will potentially be able to make gifts directly out of the IRA if it’s reintroduced as part of another bill,” Bob said. “But we’re heading for summer recess, so stay tuned in the fall.”
At issue is a benefit that would have continued to allow retirees old enough to be required to withdraw money from their Individual Retirement Arrangements (IRAs) a way to donate up to $100,000 a year from their IRAs without being taxed on the funds as withdrawals.
Ordinarily, money taken out of traditional IRAs is counted as income and is subject to taxes. Up until 2010, the charitable distribution exempted such transactions from federal and sometimes state taxes if the money went directly to a qualified non-profit organization.
“We had a fair amount of clients take advantage of it,” Bob said.
Unfortunately for the retirees and charities who could benefit from the tax-free distribution, Bob said, the proposal to reinstate the provision was attached to the $112 billion American Jobs and Closing Tax Loopholes Act of 2010, a hodgepodge of measures that eventually lacked support for passage.
In its first full year, the provision accounted for more than $140 million in donations to 900 charitable organizations surveyed by the Partnership for Philanthropic Planning.
With overall charitable giving depressed and philanthropic needs increasing through the recession, nonprofits have been eager to get the charitable distribution restored for 2010 and beyond.
“It’s an important tool that has allowed donors to make a contribution that has a little extra tax benefit,” said Kathleen Schrader, an estate planning specialist for more than 25 years, most recently as senior gift planning adviser for the Greater Milwaukee Foundation.
She noted that many efforts went into initially enacting the charitable distribution in 2006. According to the Council on Foundations, the provision had previously expired at the end of 2007 only to be brought back by Congress in October 2008.
“I wouldn’t give up on it,” Bob said of getting the provision back. “For those folks who are older than 70½, don’t need their required minimum distribution and are inclined to gift part of it, I’d wait until the fall – until we get better clarity on the subject.”
Joel Dresang is vice president of communications at Landaas & Company.
Initially posted July 2, 1010