Tax-Free Charitable Contributions from
Individual Retirement Accounts

If you are age 70.5 or older, distributions from your IRA to the Institute are tax-free. Such contributions may provide advantages over other methods of support.

The Protecting Americans from Tax Hikes (PATH) Act became law in 2015. Of potential interest to qualifying ARI donors is one of the charitable giving incentives included in the bill: Tax-free distributions from Individual Retirement Accounts to non-profit organizations are possible for individuals who have reached the age of 70.5 and who own IRAs.

(Previous legislation in effect temporarily during 2006–2014 provided for tax-free distributions for limited periods of time. The 2015 legislation made this opportunity permanent, no longer subject to expiration dates.)

Since there is no tax deduction involved—the distribution is simply excluded from gross income— even those who do not itemize deductions may participate. Can you take advantage of this opportunity, and would you want to? To find out, continue reading . . .

The key points of the legislation are as follows:

You must be at least 70.5 years old to make a Qualified Charitable Distribution (QCD) from your IRA.

  1. Gifts must be from your traditional IRA, not from other types of retirement plans. (The legislation does not speak to Roth IRAs; see #5 below.)
  2. Total charitable distributions from your IRA may not exceed $100,000 per year; other than this limit, distributions may be in any amount—more than, less than, or equal to your Required Minimum Distribution (RMD).
  3. Distributions must be made directly from the IRA custodian to ARI.
  4. Distributions must be outright charitable gifts (vs. contributions to fund gift annuities and other planned giving arrangements, which do not qualify).
  5. Public charities qualify to receive IRA gifts, but private foundations, donor-advised funds, and support organizations do not. For example, the Ayn Rand Institute qualifies, but the Anthem Foundation for Objectivist Scholarship does not.

Generally speaking, individuals 70.5 and older who are required to take IRA distributions, but who do not need or want the taxable income from that source, may find the IRA gift opportunity attractive—especially if they do not itemize deductions. Other circumstances that could motivate an IRA gift are covered in additional questions and answers below.

There is no charitable deduction for an IRA charitable transfer. Rather, the amount transferred is simply not considered when you calculate your taxable income. Previously, any distribution from your IRA was fully taxable; now, assuming you meet the age threshold and other requirements listed above, a distribution to charity is tax-free whether you itemize or not. This can be a significant advantage for non-itemizers who want to support ARI and reduce their taxable income.

Like a number of other retirement plans, IRAs are tax-deferred under federal law. You lowered your taxable income back when you made pre-tax contributions to your IRA (and even if you were not able to deduct the amount of the contribution, it has grown in value free of tax); now, when you take distributions from your IRA, that income is taxable at your ordinary income rate. If both a tax-free transfer to charity and a charitable deduction were allowed, that would constitute a double tax “benefit” in the eyes of Congress.

There probably is no advantage. There would be a charitable deduction in the case of a charitable transfer from a Roth IRA—but since the principal and growth in a Roth IRA are permanently tax-free, Roth IRA owners may find that it is more tax-efficient to contribute other assets to ARI. Essentially, a gift from a Roth IRA is the same as a gift of cash.

Yes. Other possibilities for rolling over to an IRA include 403(b), TIAA-CREF, and Keogh plans. Keep in mind, however, that there may be reasons to stay in your current plan (e.g., surrender charges, ERISA protection). Consult your financial advisor before taking this step in order to arrange an IRA gift to ARI.

Yes, it is too late this calendar year. The transfer had to have been made directly from your IRA custodian to ARI, not via a withdrawal by you.

Yes. The $100,000 annual limit applies to each IRA holder, not to each household. If both you and your spouse were to take full advantage of tax-free IRA gifts to support the Institute, you could give $200,000 per year.

Yes, but they do not apply to charitable transfers from IRAs.

Depending on the type of asset you contribute to ARI, you may claim a charitable deduction
for up to 60% or 30% of your adjusted gross income (AGI). If you contribute more than the deduction ceiling, you may “carry forward” the unused deduction for up to five additional years.

But since there is no deduction for IRA charitable transfers, the question of deduction ceilings does not even arise. In effect, the legislation allows more charitable giving—up to $100,000 more per IRA owner—regardless of AGI.

If you depend on distributions from your IRA for your livelihood, this opportunity is probably not the best option for you. But if you have sufficient income from other sources, reducing the size of your IRA—thereby reducing your future taxable income—can be a sound financial strategy. Some donors actively seek to lower their tax bracket via their support of ARI.

Above certain income levels, some donors also face deduction phase-outs (due to statutory limitations on charitable contributions and other deductions) that reduce the tax efficiency of their ARI support. IRA gifts can help solve this problem as well.

You reach age 70.5 six months after your 70th birthday, on the same day as your birthday. For example, if your 70th birthday is December 1, you will turn 70.5 on June 1.

That depends on the state. Consult your tax advisor regarding the state tax consequences of an IRA gift to the Institute.

Yes. At your death, your remaining IRA assets will be included in your taxable estate. If your estate is subject to estate tax, reducing the size of your IRA could make a difference. The smaller your estate, the smaller the estate tax bill to your heirs.

In addition, at your death your IRA funds will be subject to income tax as well, further reducing the size of your heirs’ inheritance. Regardless of whether you make a current IRA gift to ARI, naming the Institute as the death beneficiary will eliminate liability for both estate tax and income tax on your IRA.

Donating now provides more funds sooner in support of ARI’s race against time to change the culture before it deteriorates further—and doing so allows you to see your dollars in action during your lifetime.

To make a QCD to the Institute, contact your IRA custodian to find out the requirements; many custodians now supply their own form for you to complete. If a self-generated letter of instruction from you is required, you are welcome to use our sample text below in preparing your letter—or, simply contact Donor Services at ARI and we will prepare the letter for you: 800-365- 6552 or [email protected]. To qualify as a tax-free distribution on your tax return, your QCD must be completed no later than December 31 of the year of the distribution.

Sample Letter of Instruction to IRA Custodian for Charitable Distribution

Many IRA custodians will provide you with a form for a Qualified Charitable Distribution. If a self-generated letter of instruction is required, you are welcome to copy and paste the text in the sample PDF and adapt for your purposes. Alternatively, at your request ARI will prepare the letter for you.

ARI is committed to providing donors with accurate and authoritative information about charitable contributions. However, we cannot render legal or tax advisory services, and the information presented is not intended to serve as legal or tax advice. We encourage donors to consult their own advisors regarding the tax and legal consequences of potential gifts. We are pleased to work with donors’ advisors as well as our own to ensure the best result for all concerned.

Contact Donor Services

If you have any questions, please don’t hesitate to contact our Donor Services Department at 800.365.6552 or to write to [email protected]