IRA Rollovers Anytime Soon?


Tax extenders 2015

I have a Google alert that anytime “tax extenders” is in the news, I get an email.  As for IRA giving in 2015, there has really been nothing to report, except for today’s piece which gives me hope.

Here is the article headline from National Law Review today:

Lawmakers to Finish Highway Funding, Turn to Extenders; IRS Advisory Council to Discuss Operational Funding

posted on: Monday, November 16, 2015
– See more at: Here are the most relevant quotes:

“House and Senate lawmakers this week will be tasked with conferencing their versions of highway funding legislation…With regard to extenders, tax-writers will now be tasked with determining how to proceed, as Democrats and Republicans differ on their approach. While Republican tax-writers would prefer to make several of the business tax extenders permanent, Democrats have made clear that they will not support such an approach unless extensions of the business provisions are met with extensions of provisions benefiting the working class, including provisions such as the Earned Income Tax Credit. With only a month and a half before the end of the year, lawmakers face a December 31, 2015, deadline by which to reach agreement before being forced to reach back into 2015 next year, which is what occurred in January of this year.”


In others words, tax extenders are finally next in line for consideration.  Will something be done? Most certainly yes (too many lobbyists working on the 50+ extenders from too many interests not to get something done).  Will it get done with time for fundraisers to alert donors?  Probably not.

Remember last year’s debacle for fundraisers – we were given one week – that’s right – to alert donors.  No provision for using the law retroactively in January 2015 for 2014.  No switcheroos (swapping already taken late year RMD for IRA gift).

What’s the best approach?  Back to my last two posts.  It’s time to encourage donors – especially those only considering modest gifts from their IRAs – to have the check written directly to the charity and see what happens. Yes, confer with  your accountant (always good advice) but go ahead and make that IRA gift!

Nonprofits that have been pushing this advice have benefited greatly.  And, plenty have been doing it. And may the force be with you!




Quick and Simple for the Not so Quick and Not so Simple!

My last post on IRA giving without the IRA law reenacted created a stir among my colleagues – some not positive so here is the quick and simple explanation for something that is completely not quick and not simple: calculating real tax costs for jumping the gun on IRA giving (ie.. giving directly from your IRA on the hope the law will be passed retroactively)!

It is almost impossible to calculate the real tax costs BUT I am going to give you a simple explanation that I confirmed with Laura Peebles and please read to the end to get her very good points!

#1 – IRA withdrawal then gift (without IRA rollover in effect) only impacts a donor in regards to the Phase Out provision from the American Taxpayer Relief Act of 2012 (funny how they called it the “taxpayer relief act”…).  IF THE PHASE OUT DOESN’T APPLY TO YOUR DONOR, THERE IS NO IMPACT FOR AN IRA GIFT/DEDUCTION. SEE NEXT POINT.

#2 – What is the Phase Out provision?  When your Adjusted Gross Income (AGI) exceeds the Thresholds ($250,000 for single filers, $275,000 for individuals filing as heads of households, $300,000 for married couples filing jointly and $150,000 for married individuals filing separately) THEN you lose 3% of the your itemized deductions to the extent that your income exceeds your threshold.

Take a look at this chart and then read more:

Assumption: Single tax filer, Phase out threshold $250,000
NO IRA Gift IRA Gift of $100,000 and law doesn’t pass
Gross income (includes IRA withdrawals + usual stuff) $200,000 $300,000
Minus adjustments (IRA contributions, some tuition or medical, educator or some business expenses) (not relevant) (not relevant)
Adjusted gross Income $200,000 $300,000
Minus various deductions (standard deduction or itemized including charitable giving, real estate tax, mortgage interest) $25,000 $123,500 [$125,000- (3%*$50,000)]
Taxable income $175,000 176,500
What you owe (Taxable income times your tax bracket) – 28% bracket $49,000 $49,420
Cost of extra IRA withdrawal n/a $420

This is actually not an oversimplification! (I kept the numbers simple but the impact is real)  Under my simple scenario, single donor causes himself an additional $420 in tax cost by making a $100,000 IRA rollover gift (assuming law is not reenacted).  What happened?  He started out with an AGI of $200,000, under the threshold for a single individual.  By making the IRA gift (that is treated a withdrawal when the law isn’t passed), he knocked his AGI up to $300,000, exceeding the threshold by $50,000.  Law says multiply $50,000 by 3% (which is $1,500) and then reduce the donor’s itemized deductions by that amount.  In other words, multiply the donor’s tax bracket against the amount reduced by the phase out and there you have it: a real cost of $420 for this scenario for this imaginary donor to make a $100,000 direct IRA gift assuming the law is NOT reenacted (if reenacted, no cost!).

Most donors are nowhere near the threshold amounts and therefore this discussion should give you ideas of who to promote this giving option with.  Of course, any donors whose AGIs are near the threshold, there could be a cost to the gift should the law not be passed if your IRA gift causes your AGI to exceed the threshold.  Could even be a few thousand dollars. Of course, if we are talking about a gift of a few thousand from an IRA, the cost – if any – is likely less than $100!!!

Bottom line quote from Laura Peebles:

“Bottom line: run the numbers, but don’t let the hiatus in the law be an impediment to doing what otherwise might be good tax planning–assuming that the donor is willing to live with the alternative results.”

Also, if the donor was going to take his/her required minimum distribution (RMD) anyway, why not try this! The donor was going to have to add the RMD to his AGI in any case!

Of course, every potential donor needs to be encouraged to run this by their accountant but if the donor is looking for ways to give – and IRA funds make sense – why not consider it!

New Planned Giving Option Discovered? Restricting IRA Beneficiaries?


IRA pic









In conversations with an advisor and a nonprofit client last week, we stumbled upon a potential planned giving option that I have never considered or heard discussed before.  Did you know that many or most IRA plans allow you to restrict how your beneficiaries receive an inherited IRA?  You could essentially create an income stream from the IRA with the remainder going to charity.

The idea came from this simple scenario.  A woman looking to leave her IRA to my client inquired whether it can be set up to give fixed income to her husband for life and the remainder to the charity client after the husband’s passing (or, directly to the charity if he predeceased her).  And, she didn’t necessarily want to give the husband access to the principal.  Hmmm.

So, I took a quick look online and quickly discovered that IRA plan administrators typically offer individuals plenty of control over how their beneficiaries can receive their inherited IRAs.  One typical option allows you to fix the first beneficiary with a fixed annual payment (not sure how that works out but it does) with no access to the principal.  And, then you can choose the charity to be the contingent beneficiary.

Click the picture and you can see how TransAmerica does it. Or, click here and see how John Hancock offers restrictions on their forms.

Ironically, in discussing this issue, we also mentioned that the nonprofit had a gift annuity program that could do the same thing – fixed income and remainder charity.  All the donor needed to do was list the nonprofit as primary beneficiary and sign a separate agreement with the charity to establish a CGA for her spouse (if alive upon her passing) based on the ACGA rate applicable for her husband at that time.  And, the conclusion was that IRA to CGA made more sense!  Better for the charity, too.

Still, I plan on fleshing out the options with IRAs as I am convinced that IRA planning will become more important for planned giving discussions as the Baby Boomers finally move into planned giving territory.




IRA Rollover, Anytime Soon?

Sorry, we are looking again at a resolution of the various expired tax extenders (including the IRA giving law) being taken up after the November election.  Click here for Forbes’ update on this issue but it is not anything we haven’t seen before.

Congress will most likely retroactively re-enact all or most of the so-called tax extenders in late November or December, create a little havoc with those trying to use the laws for 2014 and we’ll be back in 2016 with the same issue.  Sorry the news doesn’t provide any more clarity on the topic.  If you have donors interested in using IRA giving in lieu of their RMDs in 2014, the best advice is to hold off on withdrawing anything from your IRA until the last moment.  If the law is retroactively enacted, those who waited until the end of the year to withdraw RMDs will likely have the ability to avoid taxable RMD income with an IRA gift.  Others?  Not necessarily.