New Law Ensures Charitable Distributions from IRAs

The Protecting Americans From Tax Hikes Act of 2015 (PATH) adds an extra layer of certainty for taxpayers who arrange to make charitable contributions from IRAs. The PATH Act officially became effective on December 18, 2015. Among other stipulations, the PATH Act makes permanent the IRA charitable rollover provision, which allows taxpayers to exclude up to $100,000 from their gross income to be put toward “qualified charitable contributions” from an IRA.

Section 408 (d)(8) of the PATH Act was initially enacted as a temporary two-year measure in 2006. However, since its enactment, Congress has incrementally extended the charitable rollover provision. Since extensions came after the provision’s specified expiration date, they were applied retroactively to the previously-established expiration date. As a result of the uncertainty of these expiration dates and the provisions overriding them, taxpayers had expressed anxiety over whether or not this charitable rollover would actually be available in the year 2015 and thereafter.

Section 408(d)(8) asserts that in order to be considered “qualified charitable distributions” from IRAs, any distributions in question must meet certain requirements. These requirements include the following:

  • The distribution must be from a traditional or Roth IRA.
  • The distribution must be made to a “public charity,” as described in Section 170(b)(1)(A).
  • The IRA account-holder must be at least 70.5 years old.
  • The distribution must be made directly from the IRA to the charity.
  • The distribution must be deductible as a charitable contribution.
  • The distribution must be otherwise taxable as gross income.

The PATH Act indefinitely extended the charitable IRA rollover and made it retroactively effective to January 1, 2015. Although this legislation complicated things for the 2015 tax year, the permanency of Section 408(d)(8) now offers a level certainty for those who want to make IRA charitable distributions in 2016 and onward.

To learn more about the PATH Act and how it affects your estate plan, or to explore a gamut of tools and instruments to reach your goals, call the experienced legal team at ILP. Our three step process provides our clients maximum peace of mind and helps them anticipate issues that might derail or alter their plans. Call us at (800) 827-7784 to get the insight you need.