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Charitable IRA Rollovers Extended

October 31, 2008

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A recent article in Investment News discusses the retroactive extension of the IRA charitable rollover. This rollover was originally part of the Pension Protection Act of 2006, and the extension is part of the Emergency Economic Stabilization Act of 2008, otherwise know as the rescue or bailout bill. Rollovers were allowed for some taxpayers in 2006 and 2007; the extension permits them for all of 2008 through 2009.

Under the plan, IRA owners and IRA beneficiaries age 70 1/2 years and older can make qualified charitable distributions of up to $100,000 in a calendar year. For married couples, each spouse can make qualified distributions of up to $100,000 each if both have IRAs and both are 70 1/2 years or older. The distribution limits are per person, however, so one spouse could not make a distribution of $150,000 and the other spouse make a distribution of $50,000. Qualified taxpayers can make the distributions directly from the IRA to the eligible charity. The taxpayers will not be able to take a charitable deduction for the distribution, but they will not have to pay income tax on the distribution. If the taxpayer were to withdraw the funds from the IRA, then donate the funds to charity, the taxpayer would increase the taxpayer’s taxable income by the amount of the withdrawal. The taxpayer could then take a charitable deduction for the donation to charity, but charitable deductions are limited according to the taxpayer’s adjusted gross income (AGI). If the amount of the withdrawal is large, the taxpayer’s AGI could increase to the point where the charitable deduction might be partially unavailable or partially deferred. The increased AGI could also affect other areas of the income tax return. Most clients would come out ahead making the IRA charitable rollovers rather than withdrawing the funds from the IRA and donating them to charity.

Taxpayers eligible for the IRA charitable rollover already have to take required minimum distributions from their IRAs. If they have not yet taken these distributions for 2008, they may want to use qualified charitable distributions to satisfy the minimum distribution requirements. The taxpayer can direct the IRA provider to distribute the funds directly to the specified charities by December 31st. This will satisfy the requirements for the required minimum distribution without increasing the taxpayer’s AGI. The charities will need to know the taxpayer’s name and address, and it is critical that the funds are distributed directly to the charities. As is the case for other charitable contributions, the contributions must be supported with a receipt, and a statement from the charity that no consideration was received. Unfortunately, the taxpayer cannot reverse a required minimum distribution that has already been taken, even if it was taken within the previous 60 days. The minimum distributions cannot be rolled over or undone.

The attorneys at Oast & Hook assist clients with their estate, financial, insurance, long-term care, and veterans’ benefits planning needs.

Ask Allie

O&H: Allie, do you have any other cost-saving tips for pet families?

Allie: Yes, I do. Pet families can buy in bulk and save money. They can choose the largest bags of food and litter, and get discounts on canned goods. You can split dry food purchases with other pet families, and make sure you store your portion in an airtight container. Make sure you keep the product information from the bag, in case you have questions or problems. Families might be able to barter with other families for what they need. For example, you can swap one thing, such as tax-preparation, for another, such as pet-sitting or pet supplies. I’ll have a few more tips in another column.

paw

Please feel free to e-mail your pet and animal-related questions to Allie at:allie@oasthook.com .

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This newsletter is not intended as a substitute for legal counsel. While every precaution has been taken to make this newsletter accurate, we assume no responsibility for errors, omissions, or damages resulting from the use of the information in this newsletter.

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