Fiscal Cliff

Even more interesting IRA giving questions from Fiscal Cliff law…

What if a donor took an IRA withdrawal in December (which he would like to gift to charity using the new Section 208 swapping provision) but also wrote a check to the same charity he wants to redirect the IRA funds to in December?  Can he retroactively declare that his check in December was intended to his IRA gift?

Well, the law only says that you must write your swapping gift check to your qualified charity by February 1 – who is to say when that check needed to be written?

This is a real question came to me. The donor had waited on taking IRA withdrawals until late December but he also sent a check by year end.

I went back to the statute and found one more interesting nugget with this law.  The law actually says that your redirected IRA gift “may be treated as a qualified charitable distribution to the extent that—(i) such portion is transferred in cash after the distribution to an organization described in section 408(d)(8)(B)(i) before February 1…”  In layman’s terms, your donor can re-characterize gifts to qualified charities only after he distributed the IRA funds to himself (and makes the gift by February 1).

In other words, did this donor take his Dec. IRA withdrawal before he wrote the check to the charity?  If so, he can re-characterize that gift by writing to the charity about his intent.  If not, he would have to write a new check if he wants to not pay taxes on that Dec. IRA withdrawal.

NEXT QUESTION:   This one came through this AM from a blog reader. What if the donor requested an IRA withdrawal in Nov. and the check was dated in Nov. but was received and deposited in December?  Can he use the retroactive provision for the Nov./Dec. withdrawal?  Tough question!

My initial take is that the actual “distribution” really didn’t happen until the person deposited the check – in December!  But, from a practical point, the IRA administrator probably will report the distribution as of the date they cut the check.  This is not necessarily the same rule as for charitable giving (mail box/post mark rule) – and I am not qualified to speak about IRA rules like this.  I suggested reaching out to the IRA administrator and see what date they record the distribution.  Maybe they can adjust it so that he can feel comfortable using the retroactive IRA feature?

More interesting opportunities from Fiscal Cliff version of IRA law

One of the stranger parts of the standard IRA giving rules, to me at least, is that donors can not use the Charitable IRA Giving Provision until they reach age 70.5 (according to the IRS – the day after your half-birthday).  This was meant literally – don’t request that IRA gift until you reach that actual date (even though you are obviously turning 70.5 in the particular year).

For donors interested in taking advantage of IRA giving, and who are turning 70.5 in January this year, it appears that you can take advantage of the two retroactive features of the IRA reinstatement (either matching a December IRA withdrawal with a check to a charity or instructing your IRA administrator to transfer IRA funds to a charity – if either happen in January after you officially turn 70.5).

In other words, it appears as though donors who were not able to use the IRA giving provision in 2012 (because they were not yet 70.5) might have a chance to use it in January (as long as they turn 70.5 before using it) for 2012 under this special rule.

Of course, anyone turning 70.5 in January 2013 does not have to take their first RMD until April 1, 2014!  Since they are not required to withdraw funds from their IRAs yet, this loophole may not mean much.   Anyway, if such people want to use the IRA giving law to offset their expected RMDs for 2013, they should probably wait until February to make their IRA gifts in lieu of RMDs.

This last point is an interesting one for people turning 70.5 in January.  Technically, you will not have to take your RMD until April 1, 2014 – pushing off the tax bite until 2014’s tax return.  But, you will also have a 2014 RMD, so that year you could have a double RMD tax hit.  Maybe making a gift to charity from your IRA is a nice way to lesson that tax bite? Just a thought.

Interest in a webinar briefing on post-Fiscal Cliff issues?

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IRA Rollover Update: Special Rule for RMDs taken after 11/30/12!!

Thank you readers who brought to my attention something new about the Fiscal Cliff version of the Charitable IRA provision!

After being alerted and reading the Fiscal Cliff legislation more closely, we found that Congress decided this time to offer relief for donors who wanted to use the Charitable IRA provision in lieu of their Required Minimum Distributions (RMDs).

 This new rule, which was not part of previous reenactments of the IRA giving law, applies as follows:

  • Donors who took their RMDs after 11/30/12 to themselves;
  • And, would rather have gifted those funds to charity (and not be taxed on their RMDs);
  • May make contributions to qualified charities in the same amount as their RMDs (taken in December) by 2/1/13; and
  • Not have to pay income tax on those 2012 RMDs (only ones taken in December)!

Obviously, your donor does not get a 2013 charitable deduction but this is a very important opportunity for those donors who were waiting (as we suggested) to take their RMDs late in the year (in case the IRA giving law was reenacted).

 What Can Fundraisers Do About This Special Provision?

Any donors who you know or suspect were waiting for the IRA rollover to pass, and may have waited until December to take their RMDs, should receive a phone call, email, letter or visit from you asap.

This is a great opportunity for tax savings and a potential gift for your organization for up to $100,000.