A New Funding Opportunity for Your Donors!

You have the opportunity to take action that would be helpful to charities throughout the USA! The charitable community has the unique opportunity to focus the power of donors around the country on passage of legislation that will simplify the process and the tax liability when donating IRA assets to charity.

At the middle of 2014 it was estimated that $6,421,000,000,000 (that’s Trillions) was being held in IRA accounts. Estimates further indicate that approximately 47% of all households in the USA hold 25% of all mutual funds through their personal traditional IRA accounts.

The time is now for the passage of the permanent direct IRA rollover, allowing donations as outright gifts and as funding for life income agreements!

THE PROCESS: Once approved, the process will be straight forward and easy to execute. After consideration of the gift opportunity at hand with their personal advisors, the donor would instruct the trustee for their IRA, in writing, to transfer a portion of their IRA assets to the charity of their choice. Certain dollar limitations and minimum age requirements will be included in the legislation, but the process itself will be extremely simple for your donor and their advisors to understand and accomplish.

We, in the charitable community, have lingered too long believing that someone else will do the work needed to simplify the process of our donors using IRA assets to fulfill their charitable desires. Although there is demonstrable interest by our donors and considerable potential for charities, the following reasons are often cited for not mobilizing into action.

IT WILL HAPPEN WITHOUT MY INVOLVEMENT: Many assume that the Charitable IRA Rollover will be extended and perhaps expanded with little effort by the charitable community. However, without the concern and involvement of the charitable community, who will bring the matter to the attention of the Senate and House of Representatives? Who will benefit from the legislation and wish for it to become the permanent law of the land? If the theory that it will happen without our involvement were valid, the matter would have long since been resolved. The thought of a direct IRA rollover was first proposed in 1978, back in the last century—37 years ago. President Clinton had legislation on his desk in 1995 which he refused to sign. In 2006 with a great deal of involvement and lobbying, a bill granting the “Outright gift” direct IRA rollover did become law—temporarily.

We all are well aware that the last minute or retroactive passage of the bill is totally counter-productive. Institutions have no time to build a culture of consideration for this funding source.

NO CHARITABLE DEDUCTION IS ALLOWED: Some have contended that donors are not interested in the rollover because it does not result in an income tax charitable deduction. That is absolutely correct! The transfer will be a tax free direct transfer from the trustee of the IRA to the not-for-profit organization. There is no taxable asset transferred and therefore no asset to be taxed. It will work much like the present preferential treatment of capital gains on a charitable transfer. The tax free transfer is a much better tax solution for the donor!

DONORS ARE HESITANT TO MAKE PLANS INVOLVING THE IRA ROLLOVER: This is exactly the rationale for a free standing permanent “All American Charitable IRA Rollover Act”. For too many years the “IRA rollover” seems to have been used as a bargaining chip in last minute tax negotiations involving all manner or unrelated issues.

It is difficult to generate enthusiasm for the IRA rollover for charities, donors or vendors with the uncertainty that has been a part of the history of approving this gifting asset. When the IRA Rollover becomes permanent for both outright gifts and life income funding, organizational development staffs will be able to integrate this funding source into all their marketing resources and training. There will be the opportunity to discuss this option with donors and prospects throughout the year. Donors and their advisors will have the opportunity to consider this as a potential funding source for any gifting proposals. Often a meeting to consider a possible charitable IRA rollover gift expands to include a discussion of cash, securities, and real estate contributions. Thus the IRA rollover becomes not only a type of gifting asset but a catalyst for other gift asset possibilities.

GIVING IRA ASSETS MAY ENDANGER THE DONOR’S WELL-BEING: Making the IRA Rollover available for funding life income agreements will be beneficial to those donors who want to make a gift using IRA assets but need the income from those assets. If the rollover is available only for outright gifts, a rollover gift could diminish the donor’s future security. To enable a gift to be in the best interests of the donor is in keeping with the “The Model Standards of Practice” and the “Donor’s Bill of Rights”. These statements of fundraising practice and ethical activity stand as the standard which assures that all gift arrangements are in the best interest of BOTH the donor and the charity.

EXPANDING THE IRA ROLLOVER TO INCLUDE LIFE INCOME GIFTS WILL CAUSE A LOSS OF TAX REVENUE: Actually the opposite is true! While the RMD is not expressed as a percentage, functionally the RMD for a 70 year old man is approximately 3.65%. The IRS Code requires that a Charitable Remainder Unitrust or Annuity Trust must have a 5% minimum payout stated in the trust. The one-life Charitable Gift Annuity Rate for a 70 year old person is 5.1% and the two-life CGA rate, for two annuitants, both 70 years of age, is 4.6%. The 5% trust minimum, the 5.1% one life CGA rate and the 4.6% two-life CGA rate all exceed the 3.65% RMD distribution from the IRA.

Using IRA assets to fund a life income agreement will actually increase the annual income distribution to the beneficiary. The exact tax liability is a function of the individual gift and the donors’ personal tax situation. However, your donor should receive a tangible lifelong benefit from rolling over IRA assets to a life income agreement.

We ask for the influence of your donor community with their legislators and financial support of your organization as we undertake this special opportunity on behalf of all your donors.

Download Article