RMD 2012

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.

This morning at Planned Giving Advisors, we sent out an email with donor-ready, “cut and paste” text to alert your prospects of steps they should be considering should they be interested in IRA rollover giving this year. We are advising that prospective IRA rollover donors consider waiting to see if the expired IRA giving law is reenacted before taking any IRA withdrawals in 2012. This would allow anyone interested in using the IRA rollover to satisfy their Required Minimum Distribution (RDM) to preserve and utilize that important tax savings feature should the law come back into effect later in the year.

If you would like a copy of the donor-ready IRA alert, please feel free to contact Kevin Kasper at kevin@plannedgivingadvisors.com or by phone at 973-732-2455.

In response to our email alert, we received an interesting question that was worth posting:

Why not simply advise donors to have the distribution go from their IRA directly to charity in 2012. If the rollover is reinstated it will qualify, and if it is not the distribution would be characterized as a withdrawal followed by a gift to charity. In either case, it would qualify as their minimum distribution.

I think it is a great question, even though we didn’t take that approach. Here is our response:

What you are saying is definitely true from a legal/tax planning perspective. In fact, anyone even age 59 ½ and older could be encouraged to give from IRAs, take the income tax hit, and get a mostly offsetting deduction. Why hasn’t that idea worked in practice?

The problem is that donors in general have never taken to the idea of making a charitable gift that will cause taxable income even though they would get a “mostly offsetting” deduction. You can never say it is a “non-taxable” transaction because you don’t know how the extra income impacts their tax brackets – and I believe this is enough of a reason for most donors not to be interested. The beauty of the IRA charitable rollover provision is that it creates a clear, zero tax transfer method and that apparently works for donors.

From a marketing perspective, our approach is to put in front of prospects the most palatable options. By asking donors to commit an IRA rollover gift before the law is reenacted, even though you can project little or no tax cost should it not be reenacted, is still a bit risky. In face to face conversation with prospects, if they understand the risks and costs, your idea is certainly an option. But, in an email alert, we favor sticking with options that have the least resistance from typical donors.