Fiscal Cliff: IRA Charitable Rollover Gets Extended

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Money Sandwich

January 2, 2013; Source: AFP Blog

A longstanding lobbying priority of some nonprofits got almost no attention in the fiscal cliff debate: the revival and extension of the provision of tax law allowing individuals 70.5 years old and older to donate up to $100,000 from their retirement funds to public charities without having to absorb a tax penalty. This charitable giving incentive, like the typical giving of taxpayers in the highest income brackets, tends to go to colleges and universities. The last time we saw data on charitable donations from IRAs was for 2008 and 2009, which suggested distributions along these lines:

  • 47.3 percent of the organizations receiving charitable distributions from retirement accounts were public universities, private universities, and small colleges.
  • 7.3 percent were religious organizations.
  • 7.3 percent self-identified as community foundations.
  • 5.5 percent were hospitals or health care organizations.
  • 4.2 percent were museums, symphonies, or cultural institutions.

Only 2.4 percent were social services organizations (23.6 percent were identified as “other”). In another study that looked at IRA charitable rollovers from the last four months of 2006, when this charitable giving incentive first became operational, a survey of 1,468 IRA rollover gifts amounting to $30 million revealed, for example, that 150 of the gifts totaling $2.5 million went to one institution: Harvard University.

Like taxpayers in the top income bracket, the 70.5 year-old retiree who can forego up to $100,000 of his or her retirement fund for charitable giving is likely not facing economic hardship. These givers tend to give to more established charities, not to smaller community-based charities; human services organizations, anti-poverty charities, etc. It is interesting that in reducing itemized deductions by the minuscule level of the Pease amendment (see our analysis here) and in getting the IRA rollover renewed after it had expired a year earlier, charities ended up lobbying for the charitable giving that typically goes to higher end recipients.

Be assured that despite the “saving” of the charitable deduction and the renewal of the IRA rollover in the fiscal cliff legislation, the resource problems of community-based, human service, anti-poverty, and advocacy nonprofits are all but assured to continue—and may potentially get worse if the sequestration cuts go through less than two months from now.—Rick Cohen

  • Louise Warner

    Is this retrocative to Jan. 1, 2012?

  • Steven Woolf

    Jewish Federations that support social service agencies have received over $30 million in IRA charitable rollover contributions since the provision was enacted in 2006. The average contribution was approximately $18,000.

    It is an important and proven charitable giving incentive even though there is no deduction for the rollover amount. Many of our donors look forward to making annual qualified rollover contributions but have become frustrated by the way Congress has allowed the provision to expire and then be retroactively reinstated. Perhaps this can be made permanent when and if Congress tackles tax reform

  • Steven Woolf

    Yes. retroactive

  • Eph

    Not retroactive to January 2012. Distributions made in December 2012 can be counted, even if taken as cash, but in December only.