brown on green, A Regular column about finances

A Gift of Another Color

We are all familiar with making gifts to churches or ministries simply by writing a check and placing it in the plate at church or mailing it to a ministry. Now, however, you have a new way to give by making a rollover gift from your IRA to ministries. This type of gift has been available for a few years, but it had to be renewed by congress every year, making it difficult for tax planning. Now the law has been made permanent, and it is easy to plan an IRA rollover gift every year.
Here are a few important facts about this law:

• The gift must be directly transferred by the IRA trustee to the ministry. Making a withdrawal from your IRA account and giving the amount of the withdrawal to ministry does not qualify under this law.
  

• The owner of the IRA must be 70 and a half or older to be eligible to make a transfer.
  

• The maximum roll-over amount per year is $100,000. No charitable tax deduction is available for this transfer, but the amount of the transfer does not count as taxable income.
  

You may not be in a position to make a $100,000 transfer, but you can use this strategy for smaller amounts. Many people older than 70 and a half have paid off their houses and their total charitable contributions are not high enough to allow them to itemize their deduction on Schedule A of their income tax return. However, these individuals must still withdraw their required minimum distribution (RMD) from their IRA account every year, whether they want to or not.

Using this direct rollover provision to transfer the amount of your RMD to ministry will allow you to meet the requirements of the law and reduce taxable income. Older individuals are designating their giving to ministries by transferring their RMD to ministry. Consider an individual—let’s call her Helen—whose income is $40,000 a year, gives $4,000 a year to her church, and has a RMD of $2,000 a year. She is unable to itemize her charitable deductions, so a $4,000 outright gift has no impact on her taxes. However, if she directs her RMD of $2,000 to her church and pays the other $2,000 out of her pocket, her taxable income is reduced to $38,000 and the $2,000 reduction in income saves her $300.

Our motivation for giving to the Lord’s work should not be to receive a tax deduction, but it doesn’t hurt to enjoy tax savings. Another way to look at it: why not give the tax savings back to ministry and consider it a way to give more without spending more? Using the example cited above, Helen could give $4,300 and still have the same amount as net income.

About the Writer: David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send your questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.