Planning Matters:
Making retirement plan assets work

By Susan Hagan
Executive Director, Gift Planning

Posted September 2006
From Gift Planning at Iowa e-newsletter, Volume 11

Using IRA assets for the charitable portion of your estate planning has always been a good way to maximize your ability to provide for both your heirs and the organizations in which you believe strongly.

When you leave IRA assets for your heirs, they usually must report it as taxable income. However, if you leave IRA assets to your favorite tax-exempt charitable organization, the full amount of your gift will go for your intended purposes. Then you can leave your family and friends other estate assets -- like cash, stock, and real estate -- that are income tax-free.

Now there's a new window of opportunity for using retirement assets as charitable gifts. In August, President Bush signed the Pension Protection Act of 2006. An important part of the act allows donors, for a limited time, to "roll over" part of their IRAs to make charitable gifts without having to report the amount withdrawn as taxable income. This is great news for those who care deeply about The University of Iowa and wish to offer immediate support through The University of Iowa Foundation for UI programs, students, faculty, research, or building projects.

With this new law in place, IRAs now also make sense for immediate charitable giving, so you can witness the benefits of your generosity. Before this new law, you would have had to report any amount taken from your IRA as taxable income, and then take a charitable deduction for the gift -- but only up to 50 percent of your adjusted gross income. In effect, this caused some donors to pay more in income taxes than if they didn't make a gift at all! Fortunately, from now through Dec. 31, 2007, these IRA gifts can be accomplished simply and without tax complications.

We at the UI Foundation would be delighted to speak with you about the details of such an arrangement to benefit the UI area of your choice. Here are some key points of the new law:

• The provision is effective only for the tax years 2006 and 2007.
• You must have reached the age of 70 1/2 by the time the charitable gift is made.
• The charitable rollover allows up to $100,000 each year, so this act would allow you to give a total of $200,000 directly from an IRA to the UI Foundation or other charity in two years.
• The rollover must be a direct payout from the IRA to the UI Foundation or other charity.
• The rollover cannot be used to fund a life-income gift and you may not receive anything in exchange for the gift.
• The charity must be a qualified charity, such as the UI Foundation. Specifically excluded are gifts to donor-advised funds, private foundations, and supporting organizations.
• The rollover may be used to satisfy your minimum distribution requirements in 2006 and 2007.
• The rollover amount will not be included in your adjusted gross income, nor will you receive a deduction for the gift.
• Because the rollover does not affect your adjusted gross income, the rollover gift can be made in addition to any other charitable gifts you had planned.
• The provisions of the act apply only to gifts from regular IRA's and Roth IRA's. Gifts from other types of retirement plans are not eligible.

If you are interested in making a gift from your IRA to the UI Foundation, please contact your IRA custodian to initiate the transfer. And please contact me directly with any questions about how you can take advantage of this time-sensitive opportunity to support the UI area of your choice!

Susan Hagan
Executive Director, Gift Planning
The University of Iowa Foundation
P.O. Box 4550
Iowa City, Iowa 52244-4550
(319) 335-3305 or (800) 648-6973
susan-hagan@uiowa.edu