New Pension Law Also Provides for Charity
Provision Allows for Tax-free Charitable Transfers from IRAs

Pictured is F. Graham Lee, president of Mid-Shore Community Foundation

Since 1974, millions of Americans have saved billions of pre-tax dollars in Individual Retirement Accounts (IRAs). Thanks to continued savings and investment returns, an estimated $3.6 trillion is currently invested in IRAs, and the total continues to grow. Today, a federal law was enacted allowing IRA owners to share the wealth of their retirement savings by giving directly to charity—without first counting it as income and paying income tax.

The new law could be a boon to local philanthropy.

“This is a wonderful win-win—for people who would rather give to charity than pay taxes—and the nonprofit organizations they choose to support,” said F. Graham Lee, Mid-Shore Community Foundation president.

Thanks to decades of deliberate saving and favorable investment returns, a substantial share of today’s retirees has more money in their IRAs than they’ll ever need. Many have expressed an interest in giving the funds to charity, but income tax must be paid on all withdrawals, which sharply reduces the value of the gift. Others have asked about designating their children as beneficiaries, but that may draw additional tax consequences.

“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” Lee said. “Experts estimate heirs will receive less than 25% of most IRA assets that pass through estates.”

A provision in the new federal Pension Protection Act of 2006, signed by President Bush today, creates a new option: transferring IRA assets directly to charity. By going directly to charity, the money is not included in the IRA owner’s income and—most importantly—is not taxed, preserving the full amount for charitable purposes. The law covers all gifts made this year and next.

In 2006 and 2007, holders of traditional and Roth IRAs who are at least 70 ½ years old can make direct charitable transfers up to $100,000 per year. As a qualified public charity, Mid-Shore Community Foundation can help donors execute the transfers and choose from several charitable fund options for their gift. Donor Advised Funds do not qualify for tax-free IRA transfers.

“This really is a limited-time offer: the window is open now, but it will close in 2007 unless Congress extends it,” said Lee. “For anyone interested in establishing a permanent legacy in this community, this is the opportunity of a lifetime to make the gift of a lifetime.”

The Mid-Shore Community Foundation promotes and facilitates philanthropy on the Mid-Shore by assisting in the formation and management of charitable funds or “personal foundations,” created by local donors. The majority of charitable distributions from those funds are then used to support regional nonprofit organizations. The Foundation also assists in the creation and management of scholarships, memorial funds, and endowment funds for nonprofit agencies.