Tax-Free Charitable Distributions From IRAS

WHAT IS THE STRATEGY?
The Pension Protection Act of 2006 allows eligible IRA (Individual Retirement Account) owners to make qualified charitable distributions up to $100,000 ($200,000 for married couples who qualify) per year from traditional and rollover IRAs in 2006 and 2007, without having to pay taxes on the distribution. However, these distributions are not tax-deductible and must be made payable directly to a qualified charity.¹

Transferring your wealth tax-efficiently can make a huge difference in helping you pass on more of your assets to your heirs and favorite causes. A number of philanthropic strategies are available that allow you to direct your wealth in ways that reflect your values and beliefs, meet personal financial goals and objectives and also provide important tax benefits.

This process involves a significant amount of thinking and planning. As you prepare a plan, one strategy you should consider is to make a tax-free charitable distribution from your traditional or rollover IRAs.

WHO QUALIFIES FOR THIS STRATEGY?

• You must be age 70 ½ or older at the time of the distribution.
• You may distribute any amount up to $100,000 per year in tax years 2006 and 2007.
• You and your spouse may take combined distributions up to $200,000, provided each of you owns at least one IRA, is at least 70 ½ years old at the time of the distribution and can make a qualified charitable distribution up to $100,000 from your respective accounts.
• You may distribute from your traditional IRA. Distributions may not be made from SEP and SIMPLE IRAs.

WHERE CAN YOU DIRECT CONTRIBUTIONS?

• The distribution proceeds must be paid by check directly to the charity.
• Charities must receive the distribution by Dec. 31, 2006, for it to qualify for tax-free status in Tax Year 2006. The deadline for Tax Year 2007 is Dec. 31, 2007.
• Donor advised funds and certain private foundations are not eligible charities. You must check with your tax advisors to determine whether a charity qualifies under IRS guidelines.

CAN YOU USE THE QUALIFIED CHARITABLE DISTRIBUTION TO MEET REQUIRED MINIMUM DISTRIBUTIONS FOR THE YEAR?
Yes, up to the entire $100,000 per person.

CAN YOU CONSIDER DISTRIBUTIONS THAT YOU TOOK PREVIOUSLY IN 2006 TO BE QUALIFIED CHARITABLE DISTRIBUTIONS?
For the special tax treatment, you may consider only distributions taken after Dec. 31, 2005, that are made payable from your IRA directly to a charity.

TO WHOM SHOULD YOUR DISTRIBUTION CHECKS BE PAYABLE?
The check is payable directly to the charity. You cannot receive a distribution payable to you and then issue a second check to the charity.

HOW ARE TAX TREATMENTS AND RECOVERY OF BASIS HANDLED?
You must take qualified charitable distributions from taxable amounts in an IRA first, even if they also have an after-tax basis.

EXAMPLE:
Assume you own one IRA worth $100,000, in which $80,000 is pre-tax, and $20,000 is after-tax. If you make an $80,000 qualified charitable distribution, the entire $80,000 will be treated as distributed from pre-tax dollars. The remaining $20,000 will be considered recovery of non-deductible contributions.

HOW IS THE QUALIFIED CHARITABLE DISTRIBUTION STATUS DETERMINED?
It is the sole responsibility of the IRA account owners to determine whether a distribution qualifies as a qualified charitable distribution including, but not limited to, determining whether the donee qualifies as an eligible charitable organization. You should consult a competent tax professional before considering any distributions from an IRA. The PGA Foundation does not provide tax or legal advice. You should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with your own professional advisors.

NOTE: Think about supporting The PGA Foundation through an IRA charitable distribution. For further information, contact Steve Jubb, Director of Development and Donor Relations via e-mail at sjubb@pgahq.com or (888) 532-6662.

¹ The IRS defines a qualified charity as an organization described in Internal Revenue Code Section 170(b)(1)(A), other than a Code Section 509(a)(3) private foundation or a Code Section 4966(d)(2) donor advised fund.