Morrison & Foerster LLP: Charitable IRA Rollover Provisions Set to Expire

Morrison & Foerster LLP: Charitable IRA Rollover Provisions Set to Expire

By Genevieve M. Moore, Morrison & Foerster LLP

Since 2006, individuals age 70 ½ and older have had the ability to donate as much as $100,000 from their traditional individual retirement accounts (IRAs) and Roth IRAs to charity, annually, and exclude the donations from taxable income.  The provisions governing the "Charitable IRA Rollover,"1  as it is known, are scheduled to expire at the end of this month.

According to surveys, the value of these rollover gifts to charities in the first full year after the provisions were enacted (2007) was more than $140 million, with approximately 60% of the gifts being made to public universities, and almost 10% to junior colleges.2   The rollover provisions were extended in 2008, for the 2008 and 2009 tax years.  They expired at the end of 2009, but were reinstated late in 2010 when President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.  This extension was again only effective for two years, 2010 and 2011. 

There have been efforts this year to make the charitable rollover provisions permanent;  i.e., the introduction of Senate Bill 557 and H.R. Bill 2502. The Senate bill would lift the $100,000 limit, expand the class of permissible charitable donees, and allow rollovers to be made by donors younger than age 70 ½.  However, neither bill has seen any activity since last summer. 

These charitable rollover provisions do not allow a donor to claim an income tax charitable deduction for the amount passing to the charitable recipient, but they permit the donor to exclude the rollover distribution from taxable income entirely.  For some donors, this is preferable to the alternative of withdrawing funds from an IRA and then donating them to charity.  The withdrawal/donation method requires the donor to include the IRA income in his or her personal income, and then take a charitable deduction, but for some taxpayers the income and the deduction amounts are not a wash because of percentage limitations on charitable gifts, and other limitations on their deductions.  The charitable rollover provisions for IRAs have been attractive for these taxpayers, and this month may present the last opportunity to take advantage of these provisions.

There are certain conditions for making a charitable IRA rollover, including: 

  • The donor must be 70 ½ or older.
  • The donor must own a traditional or Roth IRA.  Charitable rollovers cannot be made from 401(k) plans or other types of retirement vehicles.
  • The distribution must be made directly by the custodian of the IRA.
  • The distribution must be an outright gift made to a public charity.  Except in very narrow circumstances, rollover gifts to supporting organizations, private foundations, donor-advised funds, charitable remainder trusts, charitable gift annuities, and pooled income fund are not permitted.
  • The distribution cannot exceed $100,000 per donor for 2011.
  • The donor cannot receive any goods or services in exchange for the gift.
  • The donor must receive a substantiation receipt from the charity.

The restrictions will mean that the charitable rollover provisions cannot be used by all taxpayers.  However, those who can meet the requirements may wish to take advantage of this opportunity this month - December 2011 - before the ability to do so disappears.

Morrison & Foerster's Trusts and Estates group provides sophisticated planning and administration services to a broad variety of clients.  If you would like additional information or assistance, please contact Patrick McCabe at (415) 268-6926 or PMcCabe@mofo.com.

© Copyright 2011 Morrison & Foerster LLP.  This article is published with permission of Morrison & Foerster LLP.  Further duplication without the permission of Morrison & Foerster LLP is prohibited.  All rights reserved.  The views expressed in this article are those of the authors only, are intended to be general in nature, and are not attributable to Morrison & Foerster LLP or any of its clients.  The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.


[1] Internal Revenue Code Section 408(d)(8)(A)

[2] Partnership for Philanthropic Planning.

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