Policy Update

IRA Charitable Rollover: Tax-free withdrawals from IRAs for charitable contributions

5/18/2005

Source: Independent Sector       

Current Status
HR 1607, the Public Good IRA Rollover Act

Sign on Letter in Support of HR 1607

Rep. Herger's remarks (PDF) upon introducing HR 1607 mention IS.
 
 
Representatives Wally Herger (R-CA) and Earl Pomeroy (D-ND) have introduced the Public Good IRA Rollover Act (HR 1607) that would allow tax-free distributions to charities from individual retirement accounts.

Donors aged 59½ and over could rollover amounts from an IRA to create a life income (deferred) gift to a charity; and donors aged 70½ and over could make direct cash contributions to a charity without including the donated amount as income for tax purposes. IS has joined other nonprofit organizations in signing a letter of support to Representatives Herger and Pomeroy. We urge IS members to add your organizations to the sign-on letter.

The CARE Act of 2005 was reintroduced as part of the Senate Republican leadership's package of priority bills on January 24, 2005. It is currently contained in S.6, a larger bill that also includes welfare reform and family tax relief measures, but is expected to be considered separately from the other titles in the bill.

The CARE Act includes an IRA rollover provision that would allow tax-free distributions to charities from individual retirement accounts (donors aged 59½ and over may rollover amounts from a traditional or Roth IRA to create a life income gift to a charity; donors aged 70½ and over may make direct cash contributions to a charity).

INDEPENDENT SECTOR Position  
                            
INDEPENDENT SECTOR supports allowing individuals to make direct charitable contributions from their IRA and other retirement account assets without incurring adverse tax consequences.

Background
A growing number of Americans have accumulated unexpectedly large assets in their IRA and other retirement accounts, due in part to the growth of the stock market in the 1990s. Many of these individuals would like to draw on their IRA assets to make substantial contributions to charitable organizations.

Under current law, withdrawals from a traditional IRA or other retirement account is fully taxable as income. When the individual uses that withdrawal to make a charitable contribution, he or she would receive an offsetting charitable deduction. For larger contributions, the individual may not be able to deduct the full value of the contribution because of two limitations.

First, total deductible contributions may not exceed 50 percent of the taxpayer’s adjusted gross income (30 percent if the contributions are to private foundations).

Second, the total of itemized deductions is reduced by 3 percent of adjusted gross income in excess of a certain threshold ($145,950 for most filers in 2005), subject to an overall limit that deductions cannot be reduced below 80 percent of the original amount.

As a result, many donors have been reluctant to make charitable contributions from their retirement assets because of the additional tax costs they could incur.

In the 107th and the 108th Congress, several bills were introduced that would allow tax-free withdrawals from IRAs for charitable contributions (also known as IRA rollovers). Similar proposals have also been included in budget requests from President Bush.

Previous Action
In the 108th Congress, the House of Representatives passed H.R. 7, the Charitable Giving Act, by an overwhelming vote of 408 to 13 on September 17, 2003. The bill included an IRA rollover provision to allow individuals who are at least 70½ years of age to make direct or deferred gifts from their individual retirement accounts without suffering adverse tax consequences.

On April 9, 2003, the Senate passed the CARE Act (S. 476)  by a vote of 95 to 5.  The bill contained several tax incentives to encourage charitable donations, including a provision for tax-free distributions to charities from individual retirement accounts. 

Under this provision donors aged 59½ and over may rollover amounts from a traditional or Roth IRA to create a life income gift to a charity; donors aged 70½ and over may make direct cash contributions to a charity.  A conference to resolve differences between the House and Senate bills was not convened before the 108th Congress adjourned in December 2004.

Despite efforts into the final days of the 107th Congress, an agreement to bring the CARE Act of 2002 to the Senate floor was not reached.  It contained the same IRA rollover provision as the bill passed by the Senate in the 108th Congress (April 2003).