From his IRA to God's coffers - and it's tax-free
By HELEN HUNTLEY
Published December 10, 2006
St. Petersburg retiree Phil Maranto is out there on the cutting edge of charitable giving. Instead of writing an end-of-the-year check to St. Raphael's Catholic Church, he will make a $5,000 donation to the church-building fund from his IRA.
"I'm putting it toward a cause that I feel good about, and I like it that I can take this money out of the IRA tax-free," said Maranto, 76, onetime owner of the Snell Isle Market.
Maranto's gift will make him among the first to take advantage of a new law allowing IRA owners 701/2 and older to make direct contributions from their IRAs to charities.
The change in the law was "a total surprise to a lot of financial professionals," said Michael Faehner, a vice president at Raymond James Trust Co. in St. Petersburg. As a result, word has traveled slowly to potential donors.
He said he has helped with about $200,000 worth of IRA donations in the Tampa Bay area, including one in which a woman gave her entire account to charity.
"This was a relatively small account that was just sitting there," he said. "This was a perfect opportunity for her to close the account out."
The law allows IRA donations of as much as $100,000 per person in 2006 and again in 2007. After that the law expires unless Congress renews it. A husband and wife each can give $100,000 each year from their IRAs. To qualify, the check must be written by the IRA custodian directly to the charity, not to the account owner.
A big advantage: It can be counted as part of the donor's annual required minimum distribution and, since it makes the account balance smaller, it reduces future minimum distributions. The distribution must be reported on the donor's tax form, but the taxable amount will be zero, similar to the reporting method for an IRA rollover. The details are on page 25 of the 2006 instructions for IRS Form 1040.
The donor is responsible for determining whether a charity qualifies, so check with the charity before contacting your IRA custodian. Charitable gift funds and many foundations don't qualify.
Faehner said Raymond James gives clients a form for the charity to sign, stating that it's a qualifying charity and that it will accept the gift.
Most IRA custodians use a form for charitable distributions, although some will accept a letter of instructions. Many require a signature guarantee, available at a branch office or from another financial institution. Some have a minimum distribution amount.
"I was appalled at how complicated it is," said Christine Fahlund, senior financial planner for T. Rowe Price in Baltimore.
She said it probably isn't worth the bother for a small contribution.
However, she said some IRA owners have wanted to make direct contributions to charity for a long time and are glad to have the opportunity.
Even though you don't get a deduction for a charitable contribution made directly from an IRA, the tax savings from a tax-exempt withdrawal typically are bigger than they would be if you took the money out of the IRA, paid taxes and made a deductible donation. One reason: Many older taxpayers don't itemize deductions.
Note to payroll deduction donors
If you donate to charity through payroll deduction, save your pledge card for next year's donation. You'll need it, along with your final pay stub for 2007, to substantiate your deduction under stricter IRS rules that take effect with the new year. Donations of more than $250 require a letter from the charity saying you didn't get any goods or services in exchange for your donation.
Since the federal excise tax on telephone bills was abolished in August, why does it appear on my telephone bills?
The tax on long-distance charges was abolished. The federal excise tax on local phone service still applies.
Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, write email@example.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731. Read more questions and answers at blogs.tampabay.com/money.
[Last modified December 9, 2006, 22:00:04]
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