New rules pertain to donating IRA assets to charity


When considering whether to take advantage of this law, consult your financial planner.

A Donating your IRA assets to a worthy cause while you are living is a pretty simple undertaking. Just take a distribution and donate it to charity. After all, that's the only way to do it, right? For certain taxpayers, it's not that simple anymore. The recently enacted Pension Protection Act of 2006 (PPA) gives some taxpayers a more attractive alternative.

The second ceiling is based on AGI. When AGI exceeds $150,500 for all filers-except married taxpayers filing separately-for 2006 and $75,250 for married taxpayers filing separately, then charitable deductions are reduced by 2% (for 2006 and 2007; it was previously 3%) of the amount by which AGI exceeds this threshold. Other rules come into play, too. The point is, the charitable deduction will not completely offset the income tax obligation on the IRA withdrawal.

Some specific criteria must be met for the donation to qualify, however: the qualified charitable donation must be made after the donor taxpayer has attained age 70 1/2, the charity must be qualified, and the withdrawal must be paid directly to the qualified charity from the IRA.

Other requirements can't be addressed adequately in this brief article, and this attractive new law is only in effect for 2006 and 2007.

Many factors must be addressed when deciding whether to make a lifetime donation of IRA assets or non-IRA assets, including the availability or lack of state income tax breaks, the fact that the new law does not apply to donations from a simplified employee pension plan (SEP IRA or Simple IRA), and ability to itemize deductions. When considering whether to take advantage of this law, consult your financial planner.

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