IRA Direct Rollover Gifts

IRA Rollover Giving from SEP or Simple IRA?

SEP IRAs and Simple IRAs are retirement accounts which small businesses create (typically for the owner of the business) – similar to 401k plans but much simpler.

This question has come to me twice in the past few weeks so it must be of interest.  Can an old enough donor make an IRA Charitable Rollover gift from his/her SEP or Simple IRA?  A client also just asked me this question where the donor said he had two SEPs (not sure why he needed two).  Here is the answer I gave:

The answer is yes, with an important caveat!

Bottom line – the SEP IRA (Simplified Employee Pension) or SIMPLE IRA could be eligible for the Charitable IRA Rollover IF the donor is 70.5 (always worth mentioning) AND the donor has not made any employer contributions to the SEP or SIMPLE IRA in this fiscal year (based on his business’ taxable year – which could be different than the calendar year). In other words, it can’t “active” to work for the IRA Charitable Roller.

To your question, your donor has two SEPs! Is one “active” and one “inactive”? I believe if one of the accounts is inactive (i.e. is not receiving any employer contributions this fiscal year), that the inactive account would be eligible to make a Charitable IRA Rollover gift from!!

Below is a blurb from the IRA website:

Q-36. Is the exclusion for qualified charitable distributions available for distributions from any type of IRA?

A-36. Generally, the exclusion for qualified charitable distributions is available for distributions from any type of IRA (including a Roth IRA described in § 408A and a deemed IRA described in § 408(q)) that is neither an ongoing SEP IRA described in § 408(k) nor an ongoing SIMPLE IRA described in § 408(p). For this purpose, a SEP IRA or a SIMPLE IRA is treated as ongoing if it is maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which the charitable contributions would be made.

IRA Giving – The Questions Start

ira_rollover pictureFirst question on IRA giving that reached me today.

Individual over age 70.5 already took RMDs for 2015 in November and wants to somehow now send that RMD to charity under the IRA giving law? Any way to undo the RMD withdrawal and then have it go to charity?

Answer: sorry, no.

There is a 60 day rule for individuals (any age) to withdraw IRA funds and then return them to an IRA account with no tax consequences or penalties.  Why can’t our donor just return the RMD funds he took out in November and then request an IRA rollover gift to satisfy his RMDs?

Sadly, there is another rule regarding RMDs that prevents this from working.  The rule is that until RMDs are satisfied, any withdrawal from your IRA is considered RMD and you can’t use the 60 day rule on RMDs!!

In other words, if you are 70.5 or older (and now owe RMDs), you can’t start using the 60 day rule until you have already taken out your annual RMD.  (sounds like age discrimination to me;)

Oh well. It would have been nice if the Tax law writers had slipped some exception for giving to charity on this issue.

Click the picture above to learn more about IRA rollovers in general or click here  for more about the 60 day rule and how it doesn’t for well for people age 70.5+.

 

IRA Law Passes! Permanently!!

The IRA giving provision is on the books again!  Hooray!

Now what?

It is December 21st. Friday is Christmas (that rules out Thursday, too, and even this entire week for many).  New Year’s Eve is the following Thursday.  So, we have 6.5 business days, give or take, to do something this year about it.

Some of my colleagues have had a mailing ready to go that maybe, just maybe went in the mail today.  Problem with this strategy is that the mail is really slow this time of year – trust me, I am waiting for a check from a client 20 miles from my home that went out on Wednesday last week and I am still waiting!  Anyway, your donor needs to somehow get the IRA plan administrator to disburse the funds in 2015 to count for 2015 (no big deal if it misses).  No, in my mind, an attempt at a mailing doesn’t make sense.

What about an email blast?  Yes, go for it!  Big headline:  IRA Giving Provision Reinstated!  Big message:  Contact your IRA plan administrator about taking advantage of this year-end giving option for a tax-free gift from your IRA to ______ charity.  Bullet points:  If you are age 70 1/2 or older; You can gift up to $100,000 from  your IRA with no taxable income; Call us now for more information or contact your IRA plan administrator to find out how to take advantage of this law before December 31th.

Even better, get on the phone or personalized emails!  You should be calling anyone who not only had a recent interest in IRA giving, but anyone who ever used the provision in the past!  Talking points:  did you know that Congress just passed the law the allows you to make direct gifts to us from your IRA with no tax consequence?  If you haven’t taken your 2015 RMDs yet, an IRA rollover gift counts towards your RMD.

Beyond this year?  The law is now permanent!  Like I said – hooray!  Why am I so excited?  It just happens that the oldest baby-boomers (those born in 1946) will start turning 70.5 this year!  Oh, and did you know that for boomers, IRAs are the biggest asset class among their financial investments, by far?  Will share that data another time – just realize that IRAs for boomers are big and now boomers will start being eligible to make gifts from their IRA to cover their RMDs, for annual giving, for special or major gifts.

Don’t forget that a donor needs to have actually reached his/her 70.5 birthday before pulling the trigger on this.  The IRS, in their accountant’s way of viewing the world, actually count your half-birthday as the day you actually turn the next age.  Yep, if you are than 50% through the  year since your last birthday, you can start telling everyone that according to the IRS, you are already a year older’).

 

 

 

IRA Giving Getting Closer (and Possibly Permanent!)

ppp screen shot

Thank you PPP for your announcement  – click the picture to see it.  Yes, we are inching towards an IRA giving law again but this time it looks like it will be for good (i.e. no longer up for grabs each year).

This is great news.  Sure, you have almost no time to reach your donors this year – we will be lucky if we know for sure by Friday.  But, we can get a jump on next year and beyond, and maybe get a few gifts in by year’s end.

Why I am so encouraged is that the oldest baby boomers are just starting to turn 70 in 2016 and they are prime candidates for this giving option so the fact that the law should become permanent is great news.

My planned giving boot camp students asked what are the immediate next steps (AS SOON AS IT IS SIGNED INTO LAW)?

  • Call/email anyone you know who has used the IRA giving provision in the past!
  • Email blast away!  Time sensitive headline – act by December 31 to make your tax-free IRA gifts!
  • Even if these efforts are a little late, they will certainly help for next year and beyond.
  • Start planning a post card or newsletter or more email blast or ads in your publications – anything to catch people’s attention and open their eyes to this nifty new way of giving (if they are the right age, of course!)