A special tax provision sometimes known as the “IRA charitable rollover” is available this year for individuals over age 70½ who wish to fund gifts to charities from their individual retirement accounts. The provision allows an individual to make distributions from an IRA up to an aggregate of $100,000 during the year directly to qualified charities of his or her choice. These distributions receive favorable tax treatment: they are not included in the IRA owner’s gross income, but will nonetheless count against the required annual distributions that the IRA owner must otherwise receive after reaching age 70½. In addition, the distribution to charity will not affect the amount the donor can otherwise give to charity on a fully deductible basis. As described in Section I, an individual generally may make deductible cash gifts up to 50% of his or her adjusted gross income in any year for gifts to public charities; gifts of appreciated stock, land or other long-term capital gain property to public charities generally are deductible up to 30% of adjusted gross income in the year of the gift. Under this provision, IRA distributions made directly to a qualified charity are not subject to these limitations; nor do they affect the deductible amount of other charitable gifts a donor may choose to make. (Since the distribution to charity is not included in the donor’s income, the donor does not receive an additional deduction for the IRA distribution itself.)

As might be expected there are some limitations on these qualified IRA charitable distributions. The IRA custodian must permit direct transfers to charities. Gifts to private foundations, donor advised funds, and supporting organizations do not qualify; nor can a qualified charitable IRA distribution be made in connection with a gift annuity or charitable remainder trust. The distribution must be made directly and outright to the charity and the donor must receive the appropriate acknowledgment.

Although there are efforts to make it permanent, this provision of the law is scheduled to expire on December 31, 2011. Individuals wishing to make tax-free gifts from their IRAs should do so before year end.