Tax-Free IRA Charitable Rollovers Reinstated by American Taxpayer Relief Act (“ATRA”)

Donation can and heartFrom 2006 through 2011, individuals age 70-1/2 or older were eligible to make donations of up to $100,000 directly from their individual retirement accounts (IRAs) to benefit public charities.

Although they received no charitable deduction for such transfers, they didn’t have to report the distribution as taxable income, either. Result: zero tax. And, such a distribution counted toward fulfilling their required minimum distributions (MRDs) for those years.

But Congress didn’t act during 2011 to extend them, so they disappeared during 2012. However, Congress, in its wisdom (and perhaps because nonprofit institutions deluged Congress with lobbyists) reinstated IRA charitable rollovers in the American Taxpayer Relief Act of 2012 (signed into law on January 2, 2013), both for tax year 2013 and retroactively for tax year 2012. And since most taxpayers eligible to make IRA charitable rollovers didn’t make them in 2012 (since there was no guarantee they would get zero-tax treatment), Congress extended the period to make 2012 contributions through January 31, 2013.

If you decide to make an IRA charitable rollover during January, be sure to discuss with your tax advisor whether you should characterize it as a 2012 rollover or a 2013 rollover.