Do we really need the IRA Rollover provision?

Charitable IRA Rollover

Of course, yes!  Anything that makes it easier for our donors with greater tax incentives (real or perceived) is better.  (That is what planned giving is all about! – providing alternatives to make it easier to give!)

But, from a dollar and cents perspective, is the IRA Rollover provision really needed for a donor (age 59.5 and older) to make a gift from their IRA?  Answer (believe it or not): NOT REALLY!

Following up to yesterday’s update on the IRA Rollover, I asked an expert accountant this morning (at the end of morning dovening/services – chit chat time) to quickly go over with me the impact of a donor giving to a charity from his/her IRA this year and the IRA giving law NOT getting re-enacted (which means that the donor gets hit with an IRA withdrawal but also gets an corresponding income tax deduction.  Here are the points to consider:

  1. These points only apply to individuals age 59.5 and older (younger donors would get a 10% penalty for early withdrawal!).
  2. What happens to the donor’s tax bracket (that is the worry, right?)? Answer:  nothing!  Donor’s taxable income is increased by the withdrawal and then decreased by the same amount.  No change in your donor’s tax bracket as a result of this scenario.
  3. What could go wrong?  First issue: does your donor itemize?  This discussion only works for itemizers.  Non-itemizers would get hit with the increased taxable income but wouldn’t be taking a corresponding deduction!
  4. What else?  Second issue: deductibility ceilings? Remember, in any tax year, you can only deduct up to 50% of your adjusted gross income (AGI) – for cash gifts (which is what we are talking about).  If for some reason, your donor’s AGI is relatively low, let’s say $50,000 – then if that donor gave your charity more than 50% of his/her IRA, he/she would only be able to deduct $25,000 this tax year.  So, an IRA gift of $30,000 would leave this donor with an extra $5,000 of taxable income not offset by a usable deduction (the donor would actually get to use the extra $5,000 deduction in the following year but that is still a cost).  Most IRA gifts are low enough not to raise the issue whether the donor can use the full deduction this year or not.
  5. What else? Third issue: Pease/deduction phase outs.  This is a bit too complex for this blog post but just take my word for it. Once individuals incomes reaches around the $200,000 mark, they start losing a bit of the value of their deductions on their tax returns. It is not huge but enough that donors should be aware of it before making a gift.  If they are already losing some value on their deductions because of high income, then it would apply to this type of gift and leave them with some extra taxable income as a result of an attempted IRA gift.

In sum: there is little or no impact on donors’ taxable income if they withdraw from their IRAs and gift the withdrawal to charity.  Still, donors need to check with their accountants, in any case.  But, if your donors are telling you that they would love to gift from their IRA’s, I think it is good idea for them to go ahead!  (assuming the above issues are addressed and they get their accountant’s blessing)

By the way, I took the picture from Market Smart’s blog – click it please to check out their excellent post on this topic!


  1. I think point 3 is important. The IRA charitable rollover can be useful for individuals who don’t itemize. They don’t have to count the income, so it is a tax incentive. Granted, even though many of those gifts probably would be small, but still, it’s an incentive.

    Also, like the annual “New Model Year” event that car makers manufactured to get us all to buy new cars, the IRA Charitable Rollover gives us a great marketing opportunity. It would seem that we, the fundraisers, need the IRA Charitable Rollover more than the donors.

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