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Tax Law and Donations

New Federal Legislation Permanently Extends Tax-Free Treatment of Rollovers of Annual IRA Distributions to Charity

Joseph Chan

Former LightHouse Board Treasurer Joseph Chan walks using a white cane along a greenery-laden path.

By Gary D. Rothstein, Esq.
The new year brings good news for nonprofits and donors. IRA owners over age 70½ are required to take a minimum distribution annually. Those annual Required Minimum Distributions (RMD) usually generate ordinary income for the IRA participant.

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The PATH Act makes permanent the ability of IRA owners to exclude from their gross income IRA distributions that are made to a charity such as LightHouse (i.e., “rollovers” of distributions). There are certain limitations, however, on the exclusion of IRA distributions:

  • The individual IRA owner must be at least 70½ years of age
  • The maximum amount of IRA distributions that can be excluded per tax year is $100,000
  • The distributions cannot be made to the individual IRA owner first, but must be made from the IRA custodian directly to the charity
  • The distributions must be made to a public charity; not to a private foundation, supporting organization, donor advised fund, charitable gift annuity or charitable remainder trust

The amount of the rollover will not be included in the taxpayer’s adjusted gross income and subjected to income taxation for the year of the rollover. According to http://leicester.countrywidemediation.co.uk/, there is no need to claim a charitable deduction, and even taxpayers who do not itemize deductions on their income tax returns can benefit from the charitable rollover.

If you otherwise are in a position to forego taking the IRA distribution for yourself in a given year, a charitable rollover of a portion or all of the IRA distribution is an effective way to achieve the dual goals of reducing your income tax liability and supporting charities.

Former Treasurer of the LightHouse Board of Directors Joseph Chan told us, “I learned that by contributing to the ‘Campaign to Build a 21st Century LightHouse’ directly from my IRA plan, I can avoid a tax burden while simultaneously attaining my goal of making an impactful gift for the LightHouse. I am so delighted that my gift will be acknowledged in the naming of the Joseph K. Chan Low-Vision Optometry Clinic in the future LightHouse headquarters!”

Gary Rothstein is Of Counsel in the Trust and Estates practice group of the law firm of Weintraub Tobin Chediak Coleman Grodin. Gary’s practice has focused on estate planning, trust administration, and probate matters since 1993. Gary counsels individuals and families with respect to advanced estate planning techniques, such as revocable and irrevocable trusts, charitable giving vehicles, GRAT’s, defective grantor trusts, family limited partnerships, QPRT’s, and life insurance trusts. Gary also represents corporate and individual fiduciaries and beneficiaries in all aspects of trust administration, ranging from initial funding of trusts to representing clients in Probate Court, in connection with disputes between fiduciaries, beneficiaries and creditors. Gary counsels numerous fiduciaries, beneficiaries and creditors through all phases of contested and uncontested probate and trust administration proceedings in Northern and Southern California Probate Courts.

The LightHouse for the Blind does not endorse or recommend any commercial products, processes, or services. Mention of commercial products, processes, or services on LightHouse’s website should not be construed as an endorsement or recommendation.

Questions about supporting the LightHouse? Please contact Jennifer Sachs, Director of Development, at 415-694-7333 or jsachs@lighthouse-sf.org.