IRA

The PATH Act – Thoughts About IRAs, RMDs, and Gifts to Charity

April 25, 2016

On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).

The new law made qualified charitable distributions (QCDs) from IRAs "permanent" for 2016 and beyond.

The legislation allows donors who are age 70½ or older to distribute up to $100,000 from their IRAs (other than an ongoing SEP-IRAs or SIMPLE IRAs) directly to qualified charities without having to include the distribution(s) in gross income. Qualified charitable distributions that are not includable in gross income will not be eligible for a charitable deduction. However, the value of the distribution counts toward the IRA owner’s required minimum distribution (RMD).

 

The Rules

Donors can make a direct distribution if all the following are true:

  1. The donor is age 70½ or older on the day of the gift.
  2. The distribution of up to $100,000 is made directly from the donor’s IRA to one or more qualified charities. 
  3. The donor does not receive any goods or services in return for the rollover gift to qualify for tax-free treatment. The same acknowledgement that is required to qualify for a charitable deduction must be received.

When evaluating charitable giving options for your clients, the QCD keeps the distribution out of adjusted gross income (AGI), which can help control income used to calculate the amount of Social Security benefits being subject to taxation, or the income test for Medicare Part B and D premiums. The income is not recognized, and there is no deduction. If the client doesn’t itemize, he/she has not lost a deduction. If the client is subject to limitations on itemized deductions, these will be avoided for the QCD.

If you have a client considering a QCD, or otherwise concerned about taking RMDs and paying taxes on the distributions, it may make sense for the client to consider a qualified longevity annuity contract (QLAC). A QLAC has the benefit of reducing the amount of the RMD now while providing income in the future. That income could be used to help protect the client in the event he/she lives longer than expected, or it could be used to fund charitable gifts in the future if that is important to the client. The client could also name the charity as beneficiary of the QLAC if his/her charitable giving goals are an important part of the overall plan.

The appropriate solution will depend on a client’s specific situation. Let us know if we can help.

If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.


Attachments/Links:

 

         PATH ACT

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