New Charitable IRA Rollover Guidance

Asset Protection

Professor Christopher Hoyt of the University of Missouri School of Law has proved a useful summary of IRS Notice 2007-7, 2007-5 IRB 1, which provides guidance about Charitable IRA Rollovers.  This law, which became effective in 2006, allows anyone over age 70 1/2 to have up to $100,000 distributed directly to a qualifying charity and be excluded from income.

1. Yes, charitable IRA distributions can satisfy pledges without violating the self-dealing prohibited transaction rules. “The Department of Labor, which has interpretive jurisdiction with respect to section 4975(d), has advised Treasury and the IRS that a distribution made by an IRA trustee directly to a section 170(b)(1)(A) organization (as permitted by section 408(d)(8)(B)(i)) will be treated as a receipt by the IRA owner under section 4975(d)(9), and thus would not constitute a prohibited transaction. This would be true even if the individual for whose benefit the IRA is maintained had an outstanding pledge to the receiving charitable organization.”
2. Yes, a person over age 70 ½ who is the beneficiary of an inherited IRA can take advantage of the charitable IRA exclusion.
3. The prohibition of using an SEP IRA or a SIMPLE IRA for the charitable exclusion only applies to an “ongoing ” SEP IRA or SIMPLE IRA. Such an IRA is an ongoing IRA only if a contribution was made to it during the year. Thus , a retired individual who had an SEP IRA or a SIMPLE IRA to which contributions were made during a working career but who is now retired can make charitable distributions from that IRA since no employer contributions were deposited in the same year.
4. No withholding of income taxes — A qualified charitable distribution is not subject to withholding under section 3405 because an IRA owner that requests such a distribution is deemed to have elected out of withholding under section 3405(a)(2).
5. The exclusion applies to any such charitable distribution made during 2006, even those made before the law was enacted on August 17, 2006. This may be advantageous to people who have “IRA checkbooks” (typically at brokerage houses) where they can write checks directly from an IRA. A person over age 70 ½ who wrote such a check to a qualifying charity early in 2006 can take advantage of the exclusion.
Address: 1414 Raleigh Rd Ste 203, Chapel Hill NC 27517
Phone: 919.636.0950 | Toll Free: 800.201.0413 | Fax: 919.493.6355 |