A Guide to IRA Charitable Rollovers

1. A Guide to IRA Charitable Rollovers Emergency Economic Stabilization Act of 2008 With Case Studies James E. Connell FAHP, CSA Connell & Associates Charitable Estate and Gift Planning Specialists

2. A Guide to IRA Charitable Rollovers • Effective for 2008 and 2009 • IRA account owners 70 ½ or older may make a direct transfer to charity up to $100,000 per year • Donor profiles • Convenience donor • Standard deduction donor • Generous donor • Major donor • Social security donor

3. A Guide to IRA Charitable Rollovers • Signed by Bush on October 4, 2008 • Allows for IRA rollovers to charity • Both regular IRA accounts and Roth IRA accounts are eligible • Charity must be eligible • Individual must be 70 ½ or older on the date of contribution • Qualified Charitable Distribution will qualify for the Required Minimum Distribution requirements of IRA • $100,000 limit • $200,000 from couple with separate accounts • 2008 and 2009 transfers only • Transfers from other pensions and profit sharing plans, i.e. Keogh, 401k, 403b, etc., are not allowed • Possible to rollover above accounts to IRA if plan and time permit

4. A Guide to IRA Charitable Rollovers

5. A Guide to IRA Charitable Rollovers • Eligible charities • 501(c)3 public charities • 509(a)1 and section 170(b)(1)(A) • Field of interest funds • Restrictions on use of gifts permitted (i.e. scholarship funds or building funds) • Not Permitted • 509(a)(3) supporting organizations • Especially effects hospital foundations • Donor advised funds • Private foundations

6. A Guide to IRA Charitable Rollovers • Permitted transfers/gifts Qualified Charitable Distribution (QCD) • Outright gifts only • No charitable gift annuities • No charitable remainder unitrusts • No charitable remainder annuity trusts • No pooled life income funds • No “quid pro quo” gifts • No personal benefits • No special events • No athletic tickets

7. A Guide to IRA Charitable Rollovers • Suggested procedures • Notify charity of potential gift • Instruct custodian/trustee of IRA on the proper form and if no form send a complete letter of instructions with payment/gift to the charity as a “third party payment” • Transfer will be mostly cash but in-kind transfers (i.e. securities) are permitted • Keep records of transfer and substantiation from charity • If appropriate, elect out of withholding

8. A Guide to IRA Charitable Rollovers • Donor Profile – Convenience Donor • Most delay taking distributions until the last quarter of the year in order to grow the remaining funds tax free • If actively making charitable gifts may consider the benefits of taking them from their IRA account(s) • No inclusion in income • No income tax deduction • Qualifies for Minimum Required Distribution (RMD)

9. A Guide to IRA Charitable Rollovers • Donor Profile – Non-Itemizers • May be donors with modest IRA account balances, but sufficient retirement income from personal investments and tax-exempt accounts • Taking MRD may not significantly increase their lifestyle • Do not have significant tax deductions • State and local income taxes • Interest expenses • Medical expenses • Charitable deductions • So the standard deduction applies (2008), over 65 • Married/Joint - $11,950 one / $13,000 two • Single - $6,800 • Head of household - $9,350

10. A Guide to IRA Charitable Rollovers • Donor Profile – Generous or Major Donors • Most have large IRA accounts • May be giving at or above the 50% of AGI limit • May be subject to the 3% reduction rule if AGI exceeds $159,950 (2008) • May wish to make a large gift with immediate impact for a special project in 2008 • Carry forward may or may not be a concern because of age, health or wealth • May have filled up their 30% limit with a carry forward and have no 50% assets to contribute

11. A Guide to IRA Charitable Rollovers • Donor Profile – Social Security Donor • Social security is subject to two taxes when income reaches certain levels • A tax on 50% of SS income at the first level • A tax on 85% of SS income at the second level • Donors with income in excess of the second level may consider reducing their taxable income by making gifts from their IRA accounts thus reducing their taxable income limit

12. A Guide to IRA Charitable Rollovers • Case example • $500,000 IRA account, with a $30,000 Required Minimum Distribution • $30,000 to charity • $10,000 to charity, $20,000 to owner • $100,000 to charity: $30K to charity #1 $30K to charity #2 $30K to charity #3 $10K to charity #4 • $100,000 to charity and $50,000 to owner

13. A Guide to IRA Charitable Rollovers • Case Example • Carol in Florida, widow, husband was former DuPont employee, died under Hospice care, lives in a total care retirement facility, does not spend the income generated by her IRA retirement assets • Age 81, with $113,000 in IRA totally invested in Vanguard Windsor Fund • Received her $5,500 RMD in January and reinvested RMD into Vanguard Tax-Exempt Fund, has significant tax-free retirement income • Objective: Give total IRA account to Hospice • Plan: Gave $90,000 in November 2006 • Give balance of account in January 2007

14. A Guide to IRA Charitable Rollovers • IRA account with deductible and non-deductible contributions • IRA account value of $100,000 with $20,000 non-deductible contributions and $80,000 of deductible contributions and earnings, no other IRA, normally withdrawals follow the pro-rata rules • $80K is distributed as a QCD • Under the provisions of the regulations the QCD is considered coming from income first up to the total amount that would be includable in gross income • All $80K is exempt from taxation • Balance of $20K is not subject to taxation and can be withdrawn income tax-free

15. A Guide to IRA Charitable Rollovers • Other Concerns • Conversions of other retirement accounts to IRA accounts • Custodian or trustee reporting on 1099R • Custodian or trustee minimum QCD levels • State income tax impact for charitable gifts • State income tax impact for QCD • Electing out of withholding for MRD • Charity substantiation for $250 or over following the rules of Tax Revenue Section 1.170A-13f, contemporaneous written acknowledgement

16. A Guide to IRA Charitable Rollovers Thank You