IRA investors have given at least $75 million to charitable organizations through June 4 as a result of a provision in the Pension Protection Act of 2006 that allows distributions from the qualified plans to be rolled over to a charity tax free.
CHICAGO — IRA investors have given at least $75 million to charitable organizations through June 4 as a result of a provision in the Pension Protection Act of 2006 that allows distributions from the qualified plans to be rolled over to a charity tax free.
The Indianapolis-based National Committee on Planned Giving, which has tracked distributions received by charities from individual retirement accounts since the act became law in August, says that IRA-funded donations are likely much greater than $75 million, because not all non-profit organizations submit data to the group.
The committee said that 4,193 IRA gifts had been reported as of June 4 with an average value of $17,917.
Of the organizations that reported, public universities received 32.1% of the total, private universities 27.5%, and small colleges 9.8%. Also receiving donations were hospitals, religious organizations, social services, museums and other non-profit groups.
Advisers and non-profit organizations are trying to draw attention to the PPA provision before its scheduled expiration Dec. 31. Specifically, it permits an IRA owner who is 70½ or older to exclude up to $100,000 from their annual gross income for qualified charitable distributions from IRAs. Donors may not take a charitable deduction for their contribution, as the rollover gift is not recognized as income.
Because many investors could find the PPA provision advantageous, advisers and eligible charitable organizations are staging marketing efforts to increase awareness, including direct mail campaigns explaining the provision.
Harvard University in Cambridge, Mass., which hasn’t reported its IRA inflows to the NCPG, has received $4 million in gifts as a result of the PPA provision, according to Anne McClintock, executive director of university planned giving. Last year, Harvard received $595 million in total donations.
“This has enabled donors to make larger gifts,” Ms. McClintock said. “I know people have provisions in place for future gifts and decided to do something now versus later because they could tap into their IRAs.”
Direct marketing
The university sent postcards to individuals age 70½ and older, and mentioned the issue in newsletters and the alumni magazine.
“With a relatively minor amount of effort, we were able to receive $2.5 million that can be put to use immediately in helping students and faculty at Harvard,” Ms. McClintock said.
Because the provision is temporary, some non-profit organizations have been reluctant to spend money promoting the provision, said Rebecca Locke, director of gift planning for the Washington-based American Red Cross.
“You hesitate to spend so much money on something that will sunset on Dec. 31,” she said. “I’d hate to spend $50,000 on something that on Jan. 1, I’d have to throw away.”
Even without promotion, Ms. Locke said, many chapters of the Red Cross reported receiving IRA gifts, and the national organization itself “has received several hundred thousand dollars.”
Some advisers said that several of their clients have been eager to donate IRA money to charity.
“Because it only lasts this year, it’s a very short window,” said Jeff Nuerge, an adviser with Financial Independence Group in Fort Wayne, Ind. “There are thousands of people out there with large account balances, and you do want to get the word out: The window is closing.”
Non-profit organizations are hopeful that Congress will keep the window open and make the law permanent. A bill introduced in March, the Public Good IRA Rollover Act of 2007, would expand the IRA charitable rollover to include gifts made to donor-advised funds, supporting organizations and private foundations and would cover gifts greater than $100,000 and planned gifts by donors older than age 59.
Although several months remain until the current law’s expiration, the push is on for donations right now, because many individuals receiving a minimum required distribution get that money monthly. If they choose to direct a portion of that money to a charity, they must make those plans now, said Robert Thompson, president of Sage Financial Design Inc. in Simsbury, Conn.
Mr. Thompson said that 11 of his clients have elected to make IRA charitable donations, up from three last year.
Clients best suited for IRA charitable rollovers typically are corporate executives whose IRA accounts have hefty balances, said Randy A. Fox, a former president of The International Association of Advisors in Philanthropy Inc. of Rocky Hill, Conn.
He is a certified financial planner with InKnow Vision, a Naperville, Ill., firm that provides estate and wealth transfer plans.
“I think people forget about [this provision], because it’s temporary,” Mr. Fox said.
Meanwhile, advisers who help their clients with this provision must ensure that the donation is handled properly, said David Strege, an adviser with Syverson Strege & Co. in West Des Moines, Iowa, noting that the contribution must be distributed directly from the IRA to the non-profit organization.
The provision “makes perfect sense” for affluent clients, said Jim Harvey, president of Opus 111 Group LLC, a Seattle-based wealth management firm.
