IRA Charitable Rollover Gifts

Using Traditional IRA to Support Catholic Education

The IRA Charitable Rollover provides persons over the age of 70 1/2 with a Traditional IRA with an excellent opportunity to support Catholic education by making annual gifts during their lifetime from an asset that would be subject to multiple levels of taxation if it remained in their taxable estate.

To qualify

• A donor must have a Traditional IRA.
• He/she must be age 70½ or older at the time of gift.
• Transfers must be made directly from a Traditional IRA account by the donor’s IRA administrator to the Diocese of Pittsburgh. [Funds withdrawn by the donor and then contributed do NOT qualify. Neither do gifts from 401k, 403b, SEP and other plans.]
• Gifts must be outright. Distributions to Donor-Advised Funds or life-income arrangements such as charitable remainder trusts and charitable gift annuities currently do not qualify.

Benefits — qualified charitable distributions

• Gifts in any one calendar year can total up to $100,000.
• Such gifts are not included in the donor’s gross income for federal income tax purposes on IRS Form 1040 (no charitable deduction is available, however).
• Such gifts count towards the donor’s required minimum distribution for that year from his/her IRA.

Example 1

Suppose Joan wants to make a contribution to endow a gift for one of our Catholic schools. She has $500,000 in her Traditional IRA and wants the contribution to be $50,000. She can authorize the administrator of her Traditional IRA to transfer $50,000 to the Diocese of Pittsburgh for the designated school. The $50,000 distributed to the school will not be subject to federal tax and will be counted toward her annual required minimum distribution. This endowed fund will create a Named Fund in the Diocese of Pittsburgh Foundation and generate $2,000 annually for tuition aid for students in that school in perpetuity.

Example 2

Joan wants to make a onetime gift to one of our Catholic schools. She can authorize the administrator of her Traditional IRA to transfer an amount equal to or less than her required minimum distribution. The gift distributed to the school will not be subject to federal tax and count toward her annual required minimum distribution.

Questions and Answers

H.R. 2029, the Protecting Americans from Tax Hikes Act of 2015 permanently extended the IRA Charitable Rollover. It allows individuals age 70½ and older to make direct transfers totaling up to $100,000 per year to 501(c)(3) charities, without having to count the transfers as income for federal income tax purposes.

Who qualifies? Individuals who are age 70½ or older at the time of the contribution (persons have to wait until 6 months after their 70^th birthday to make the transfer).

How much can be transferred? Up to $100,000 per year may be transferred.

From what accounts can transfers be made? Transfers must come from a donor’s Traditional IRA directly to the Diocese of Pittsburgh specifying where the proceeds are to be directed. If a person has retirement assets in a 401k, 403b etc., he/she must first roll those funds into a Traditional IRA, and then direct the IRA administrator to transfer the funds from that IRA directly to the Diocese.

Why give through the Diocese? Only tax exempt organizations that are classified as 501(c) (3) can receive these gifts and the Office for Stewardship of the Diocese of Pittsburgh is set up to handle them.

Can a donor use the Traditional IRA Charitable Rollover to fund life-income gifts (charitable gift annuities, charitable remainder trusts, or pooled income funds, donor advised funds or supporting organizations)? No, these are currently not eligible.

How will the school get the gift? The Diocese will direct it to the school, or direct it to a fund to generate income for the school, based on the donor’s intentions.

What are the tax implications to the donor?

• Federal — The donor does not recognize the transfer as income, provided it goes directly from the IRA administrator to the Diocese; therefore, the donor is not entitled to an income tax charitable deduction for the gift.
• State — Each state has different laws, so donors will need to consult with their own advisors.

Does this transfer qualify as the donor’s required minimum distribution? Once a person reaches age 70½, he/she is required to take required minimum distributions from Traditional IRA retirement plans each year, according to a federal formula. IRA Charitable Rollovers count toward the donor’s required minimum distribution from the IRA for the year in which the gift is made.

Can a spouse also make an IRA Charitable Rollover, even if married and filing jointly? Yes, every individual can use the IRA Charitable Rollover for up to $100,000 each year.

How does a person know if an IRA Charitable Rollover is right for him/her?

He/she is at least age 70½, and:

• Does not need the additional income necessitated by minimum required distribution, OR
• Charitable gifts already equal 50% of his/her adjusted gross income, so there is no benefit from an income tax charitable deduction for additional gifts, OR
• He/she does not itemize deductions, OR
• He/she is subject to income phase-outs on his/her income tax deductions.

What is the procedure to execute an IRA Charitable Rollover? The Stewardship Office at the Catholic Diocese of Pittsburgh has a preferred method of transfer for Traditional Charitable IRA Rollover gifts. It directs your provider to make a check payable to us, but direct it to you. Upon receipt of the check, you forward it to us with a letter explaining the nature of the gift and how you’d like it used. [To simply this procedure, we offer sample letters to assure that your wishes are carried out correctly and in a timely manner. Please contact us in advance when considering this type of gift. Also, it is always important to check with your financial advisor to determine if this strategy is right for you since we do not provide legal or tax advice and this information is not intended as such.]