Yes, after nine years of waiting and wondering if this law would ever be anything other than an after-thought Congress considers every December, it was made permanent with President Obama’s signature December 18, 2015. Here are the rules and some thoughts about how the law can benefit many of you who support St. Labre Indian School.
• To take advantage of the law, you must be at least 70 1/2 years of age.
• You can have up to $100,000 sent directly from a qualified retirement account or an individual retirement account to St. Labre Indian School without any tax liability whatsoever. The key is that you must have this done by the agency where your funds are held. If you receive the funds directly, they will be credited as income to you and be fully taxable.
• All contributions for 2016, must be made by December 31, 2016. Since this process may take some time, you will want to start on it well before that deadline, at least by December 1.
• Since this is a direct rollover and you are receiving no income and thus paying no taxes on the rollover, you cannot claim a tax deduction. This has confused people over the years, even retirement plan managers in some cases. Think of it this way: no income, no taxes, no tax deductions.
You might be asking: How is this better than receiving the income and then taking a tax deduction? In some cases it may not be. If you rely on disbursements from your retirement account for basic living expenses, then this isn’t for you. However, if your problem is too much taxation, the rollover provision can help tremendously.
First consider that most seniors (70 1/2+) do not have enough deductions to itemize any longer. If you are in that situation and you contribute to St. Labre, your donation holds no tax benefit for you. But to be sure, you will pay taxes on your IRA distribution. For example, if you live in Montana and your income is derived from Social Security, your retirement savings and a part-time job, you probably would find yourself in the 25% federal tax bracket and the 5% state tax bracket. This means if you wanted to make a $1000 gift to St. Labre you would also have to pay $300.00 in income taxes. Keep in mind, too, that most people fall into the 70% of the senior population that cannot itemize their deductions. In essence, you would have to withdraw $1300 to make the $1000 donation.
Now consider the IRA Rollover gift. Your retirement representative sends $1000 directly to St. Labre. That’s what it costs you, no more. But there is another consideration. In some cases, your mandatory distribution (for anyone with a retirement account, these begin in the year you turn 70 1/2) could put you into a higher tax bracket. It would depend on how close to the threshold you are and how much your distribution would be.
Another point to remember: this law isn’t just for “high rollers.” Yes, you can give up to $100,000, but you can give any amount below that as well depending on the minimum amount you have to withdraw from your plan. St. Labre, for example has received many rollover gifts for $100 or less.
One final piece of information: now that this law is permanent, it is more likely that it can and will be modified in coming years to be even more beneficial. Legislation to that effect is presently before Congress. For now, however, an important and worthwhile piece of planned giving legislation has been made permanent. We hope you will take advantage of it.
If you have questions about the IRA Rollover or any planned giving options, call the St. Labre Planned Giving Department toll free at 1-866-652-0959. We can send you a brochure with details or discuss your individual circumstances over the phone.