Charitable IRA Rollover for 2015 - A Tax Benefit for People Over the Age of 70 1/2 Years Old

Posted on March 31, 2015

By: Robert W. Kessler, Esq.

In 2006, a temporary law was passed that permitted an individual over 70½ to make up to $100,000 of charitable gifts directly from his or her IRA. This law was extended through 2014, and there are bills currently pending in Congress to extend the charitable rollover for 2015 and beyond. Many retirees have been particularly motivated to apply their charitable IRA gifts to satisfy their required minimum distribution (RMD).

In order to take advantage of the tax free distribution of up to $100,000 from your IRA, you must be 70½ or older, and the distribution can only go to public charities. By making such a gift, you would not have to pay the extra 3.8% surtax on investment income that you would pay from your required minimum distribution.

At the end of last year, we waited eagerly for the bill to be passed to provide the charitable rollover for 2014. The extender bill was finally signed in the middle of December. Many clients struggled to get their rollovers completed before December 31.

If and when the 2015 bill is passed, you will need time to have the checks paid from your IRA directly to your charities. Last year, many custodians of IRAs said that they need two to three weeks to make the qualified distribution.

If a client makes a distribution of his or her RMD amount now to the charity, and the 2015 bill is never passed, then the individual would include the required minimum distribution in his or her income and would receive a corresponding charitable deduction for the contribution made. With the income tax surcharge of 3.8% and a reduction in the itemized charitable deductions, this is not as beneficial as the direct rollover which would avoid any income taxation on the required minimum distribution. Nevertheless, it would be better to have received a charitable deduction for the required minimum distribution after being forced to pay the income tax and 3.8% surtax on distribution received. It is for this reason that we are again advising our clients who want to take advantage of the rollover in 2015 to go head and notify their custodian and direct them to send the forms for the rollover so that the distribution can be made well before the end of the year. Most commentators believe the charitable rollover law will be extended by year end and acting sooner will avoid any last minute rush.

Therefore, we are recommending that interested individuals consult with their tax advisors and consider rolling over all, or some portion of, their RMD to charity as soon as possible and await the proposed passage of the bill to approve the qualified charitable distribution for 2015. With a Republican controlled Congress and considering the past history, we expect the bill to pass well before Christmas.

Robert W. Kessler is a Partner in the Family Wealth and Estate PlanningDepartment.He can be reached at 585.987.2849 or rkessler@woodsoviatt.com

Robert W. Kessler