Note: At publication date the House and Senate are still not in agreement on the provisions of the tax extenders bill. It is very likely to be passed and enacted by the end of 2010, but has not yet been signed by the President.

In The American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213), which is still in negotiations in the Senate, Congress permits a 2010 rollover directly from an IRA to a qualified public charity.

This act enables an IRA owner age 70½ or older to make a direct transfer to charity. The transfer may be up to $100,000 in one year. See Sec. 408(d)(8)(A). The IRA rollover first created by the Pension Protection Act (PPA) of 2006 is (after enactment of H.R. 4213) extended to the end of 2010.

Donor Profiles

There are five donor profiles for IRA rollover gifts. First is the convenience donor who finds it a very simple and easy method for an end of year gift. The second is the generous donor, who wants to give past the 50% of AGI limit. The third is a major donor. This person may be a board member or trustee who is looking for a favorable opportunity to make a major gift. Fourth, the Social Security recipient may reduce taxes with an IRA rollover gift. Finally, a standard deduction donor will benefit from a direct IRA to charity gift.

Convenience Donor

The majority of IRA owners delay taking IRA withdrawals until November or December each year. As the individual approaches the end of the year, he or she will need to make decisions. If an IRA owner is actively making gifts to charity during the year, then it may occur to him or her that this is a good opportunity to make a gift.

Convenience donors will contact their IRA custodians to arrange for the IRA charitable rollover. There is no charitable income tax deduction, but also no inclusion in federal taxable income. It is simply a very convenient way to help their favorite charity. Since the convenience donor may be a person with a small or medium value in the IRA, this probably will be the largest numeric category of donors.

Generous Donor

Some very generous individuals are already giving to the 50% of adjusted gross income level. This is the maximum permissible level for cash gifts each year. The excess gifts may be carried forward and deducted over the following five years. Some of these generous donors may also have a large IRA. Since they frequently live at a moderate level in proportion to their income and assets, they may not actually need all of their IRA.

If there is a desire to give more, they can give to 50% of adjusted gross income from their regular assets and then make "over and above" gifts from their IRA. Some generous donors may in effect give 100% or more of income per year through this method. Since the IRA is not included in taxable income, it will have no impact on their regular income and other charitable gifts.

Major Donor

Board members, trustees and other major donors are frequently asked to make gifts of $100,000 or more. As the rules have continually become more favorable for IRAs and the required withdrawals have been reduced, large IRAs will continue to grow. Over longer periods of time, there are occasional market dips and drops but the longer-term trend is positive and large IRAs will continue to increase in value.

For many professionals and business owners, the IRA may even become the vast majority of the estate. They have a need to do some "asset balancing" or there may be major future income tax problems. Therefore, it may be desirable for the major donor to give $100,000 per year to charity from his or her IRA. This has the advantage of "balancing" the estate assets.

In addition, there may be income tax benefits. If the donor were to take the IRA into his or her own personal income, there are several types of exemptions that are phased out at higher income levels. Thus, it may actually be preferable to make the gift directly from the IRA rather than making a charitable gift from regular income.

Social Security Donor

Social Security is subject to two levels of taxation. For donors who have income in excess of the first level, 50% of their Social Security is taxed. For donors with income in excess of the second level, up to 85% of Social Security income may be subject to tax.

Withdrawing an amount from an IRA will potentially cause the recipient's income to increase from the 50% taxable bracket to the 85% taxable Social Security bracket. Even though the withdrawn amount is given to charity and deducted, there is still taxation with the added 35% bracket. Thus, by making the transfer directly to charity, many Social Security recipients will save substantial taxes.

Standard Deduction Donor

Many seniors do not have a mortgage and their medical deductions are less than 7.5% of adjusted gross income. Thus, they may not have a sufficient level of deductions to itemize and choose instead to use the standard deduction.

If this donor withdraws $1,000 from his or her IRA and then gives it to charity, there is $1,000 of increased income with no offsetting charitable deduction since the standard deduction is taken. Therefore, it will be preferable for all donors taking a standard deduction to make IRA gifts directly to charity and avoid the additional income tax otherwise payable.

IRA Gift Opportunities

The $100,000 IRA charitable gifts provision opens up many gift opportunities. Charities and allied professionals will want to explore all of these gift benefits with donors and clients. Everyone will appreciate the flexibility of IRA charitable gifts. As the age wave meets the IRA wave, there are major charitable giving opportunities ahead.