As a result of our failing economy, in October of 2008, the Emergency Economic Stabilization Act of 2008, often referred to as the bailout of the U.S. financial system, was enacted. The Act does contain at least one benefit for the charitably inclined by extending the IRA Charitable Rollover through December 31, 2009.
Throughout our working lives, most of us are motivated to save by contributing to retirement accounts, because of the income tax benefits. We accumulate our savings through annual contributions to retirement accounts that are deductible or excludable from our gross income. Keep in mind that while the earnings are not currently taxed, the tax is simply deferred and not eliminated. Ultimately our distributions from these accounts will be subject to income tax. Also, these accounts will be subject to estate taxes.
What is the IRA Charitable Rollover and who qualifies? The law permits anyone 70 ½ years of age or older to transfer up to $100,000 from their retirement account outright to a charity(ies), tax-free. If one acts fast, a transfer of up to $100,000 can be made for both 2008 and 2009.
Why would anyone want to give away their nest egg? Besides the non-tax reasons, one can plan to avoid future income tax and the estate tax by rolling over a portion of their retirement account to a charity. Although the poor economy has greatly diminished the value of many people’s retirement accounts, much wealth is still accumulated in these retirement accounts. A wealthy couple with considerable assets in their IRAs now has the ability to reduce the size of these accounts and their estates by a charitable rollover. The married couple could plan to transfer up to $400,000 to charity if done before the end of 2008 ($200,000 in 2008 and $200,000 in 2009).