Both the CARE Act of 2003 that passed in the Senate and the Charitable Giving Act (H.R. 7) that passed in the House permit current gifts from IRAs to charity. The two acts will be subject to a final agreement by a joint House-Senate Conference Committee, followed by approval from Congress and a White House signing ceremony. However, the IRA sections of both bills are quite similar. As a result, there have been several practical questions asked about making current gifts from IRAs.

While these answers are still subject to the final bill as signed by President Bush and new rules from the IRS, the general guidelines for IRA gifts to charity are now becoming clear and will probably follow these rules:

How old must an IRA owner be before he or she may make gifts to charity?
Under both bills, direct gifts will be permitted after the IRA owner has reached the age of 70_. Since the number of days in each month is not uniform, it is desirable to wait until six calendar months and two or three days after an IRA owner's 70th birthday to start making IRA gifts.

When will this law apply?
The Charitable Giving Act in the House is effective on January 1, 2004. This is very likely to be the effective date of provisions allowing gifts from IRAs.

How will an IRA owner actually make the gift?
IRAs are held by custodians, usually large financial service companies, banks or trust companies. It is likely that most IRA custodians will provide a simple form for a transfer directly from the IRA to charity. While there will be a record of the charitable gift, the IRA custodian will not report a taxable distribution to the IRS, and the donor will not pay tax on that amount.

I understand that there is a required minimum distribution each year after age 70_. Will the gift to charity qualify as part or all of the required minimum distribution (RMD)?
Probably, yes. The CARE Act does not specifically state that the gift will meet the RMD transfer, but the explanation of the provision in the budget of President Bush suggests that this gift from an IRA to charity is intended to fulfill the RMD. For example, assume that a person has a required minimum distribution of $10,000, and gives $2,000 from her IRA to charity. Under the guidelines suggested by the President's budget, the remaining required minimum distribution for that year would be $8,000.

Do gifts from an IRA produce an added charitable income tax deduction?
No. Since the gift is not included in taxable income, there is no charitable deduction. This is a benefit over the previous method of reporting the withdrawal in taxable income and then taking the charitable deduction. It is both convenient and simple to make the gift directly from an IRA.

Will all charities be eligible for IRA gifts?
Charities are classified as qualified exempt by the IRS. Both public charities and private foundations that are classified as qualified exempt will be eligible.

Can I use my IRA gift to purchase a table for ten friends at my local charity dinner?
No. A gift from an IRA must not include a substantial benefit back to the donor, such as a dinner for ten at the annual charity auction.

Will I be able to give my regular cash and stock gifts (up to 50% of adjusted income for cash and 30% of adjusted income for stock) and also give from my IRA that year?
Yes. Gifts from an IRA are not “includable in gross income” and should not affect any of your other charitable gifts. Some generous donors will make substantial gifts under the regular rules and will give "over and above" from IRAs.

 
The information contained in this Q&A is general in nature and is not intended as a substitute for expert legal and financial advice. For advice or assistance in specific cases, the services of an attorney or other professional advisor should be obtained.