Did You Know... You Can Now Contribute A Gift Directly from Your IRA to Lancaster General Hospital?

IRA's have always been great vehicles for deferring income taxation. However, until recently, it was usually not advantageous to withdraw funds from an IRA in order to make a charitable contribution since the funds withdrawn were taxable and the charitable contribution may or may not have been deductible.

The Pension Act of 2006, signed by President Bush on August 17, 2006, created the "qualified charitable distribution" from IRA's. If the requirements listed below are met, there is no income tax consequence to an IRA owner for charitable distributions from the IRA, i.e. the funds distributed from the IRA that would normally be taxable are tax free. However, no tax deduction is allowed for the charitable gift since a deduction would result in a double tax benefit on the same funds.

The requirements for a "qualified charitable distribution" are as follows:

1. The distribution must be made in 2006 or 2007
2. The distribution must be equal to or less than $100,000, married couples can give up to $200,000 assuming that each spouse withdraws from their own IRA
3. The IRA owner must be 70 1/2 at the time of the distribution
4. The distribution must be directly to a public charity (not a donor advised fund, supporting organization, or certain private foundations)
5. The charitable contribution must be one that would be 100% deductible if made from non-IRA assets (so split interest gifts, such as a charitable gift annuity or a charitable remainder trust, will not work)
6. The transfer must be from a traditional IRA or Roth IRA (not any other type of retirement. No SEPs or SIMPLEs)

A "qualified charitable distribution" may be used to satisfy the IRA owner's minimum required distributions for the year.

The following list describes IRA owners/charitable donors for whom the new "qualified charitable distribution" option may be advantageous:

1. Donors who choose not to itemize deductions and want to exclude IRA withdrawals as reportable income
2. Donors who do not need the income from their minimum required distributions
3. Donors for whom additional income will cause more Social Security income to be taxed
4. Donors whose income levels cause the phase-out of their exemptions
5. Donors who are subject to the 2% rule that reduces their itemized deductions
6. Donors who wish to give more than the deductibility limit (50% of adjusted gross income)
7. Donors who intend to leave the balance of their IRA to charity at death

If you are an IRA owner, please check with your financial advisor on the advantages of utilizing this recent charitable contribution strategy. Remember, this opportunity ends December 31, 2007.