Tax Saving Opportunities

Important new information:

The Pension Protection Act of 2006 (PPA) contains IRA rollover provisions which enable many to make a tax-advantaged gift to charity directly from an Individual Retirement Account.
To Qualify:

The donor must be 70½ years of age or older.
The transfer must be made directly from the IRA (including Rollover IRA and Spousal Rollover IRA accounts). to a qualified charity, such as the YMCA of Metropolitan Hartford.
Gifts must be outright (transfers to donor advised funds, support organizations and charitable remainder trusts and charitable gift annuities do not qualify for rollovers) YMCA of Metropolitan Hartford, is a qualifying charitable organization.
Transfers (up to $100,000 each year per donor) must be made in 2006 and/or 2007 - a window of only two tax years.

Who Benefits?

Individuals who are required to take minimum distributions (MRD) from an IRA but don’t actually need this additional income can satisfy the distribution requirement with a transfer to charity.
Individuals who may sometimes donate up to 50% of their adjusted gross income – the ceiling on the allowable charitable deduction for any year – can now give up to $100,000 more from their IRA accounts, which is not subject to this limitation or taxed as a distribution. This could enable taxpayers to avoid up to an additional $35,000 ($100,000 x 35% tax bracket) in federal income tax on IRA distributions for this and next year.
Individuals who live in states where a state income tax charitable deduction is not available (such as Connecticut). The new act can result in state tax savings up to $7,000 in some states because the direct transfer of $100,000 from a donor’s IRA will not be included in adjusted gross income subject to state income tax.
Individuals who do not itemize and who make a charitable gift in an amount less than the federal standard deduction ($10,300 for married couples, $5,150 for single filers) can benefit from a transfer directly from their IRA to charity.
Individuals whose major assets reside in their IRAs will find it convenient in 2006 and 2007 to make direct transfers to charity from their IRAs without the hassle of having to report the transfer on their income tax returns.

Additional Points to Remember:

This legislation applies to rollovers from IRAs (including rollover IRAs and spousal rollover IRAs), but does not apply to such retirement plans as 401(k)s and 403(b)s, SIMPLE IRAs and simplified employment pensions (SEPs)Retirement Account.
At a minimum, those over 70½ who are taking a required withdrawal (MRD) from an IRA and are also contributing funds to charity should strongly consider taking advantage of making tax-free gifts directly from their IRAs in both 2006 and 2007.
Even though the maximum direct rollover amount to a charitable organization is $100,000 per year, any lesser amount may also be rolled over, so long as it complies with requirements of the legislation.

For more information please call the YMCA of Catawba Valley Financial Development Office at 828.624.1184. You may also e-mail Angela Chapman, Financial Development Director at angelac@ymcacv.org.