PENSION PROTECTION ACT OF 2006

On Aug. 17, 2006, President Bush signed into law new tax incentives for charitable gifts from donors who are 70½ or older. The Pension Protection Act of 2006 encourages financial support of charitable organizations across the United States.

Under the law, you can make a lifetime gift using funds from your individual retirement account (IRA) without undesirable tax effects. Previously you would have had to report any amount taken from your IRA as taxable income, and then take a charitable deduction for the gift, but only up to 50 percent of your adjusted gross income. In effect, this caused some donors to pay more in income taxes than if they didn’t make a gift at all.

Fortunately, now these IRA gifts can be accomplished simply and without tax complications. Plus, you can make the gift now—while you are living and able to witness the benefits of your generosity.

You may contribute funds this way if:

You are age 70½ or older
The gift is $100,000 or less each year
You make the gift on or before Dec. 31, 2007
You transfer funds directly from an IRA or Rollover IRA
You transfer the gift outright to a public charity
You cannot receive benefits in exchange for the gift

How the New Law Works
John, aged 75, has $535,000 in an IRA and has pledged to give $55,000 this year. If John transfers $55,000 from the IRA, he will avoid paying income tax on that amount. He cannot, however, claim a charitable deduction—it is a pure "wash." John has found an easy way to benefit charity without tax complications.

If his spouse has an IRA and is 70½ or older, she can also give up to $100,000 each year.

How to Make a Donation
Prior to making a gift, contact Susan Newlin, snelwin@sherman.edu in the Institutional Advancement for any special instructions. Then contact your IRA custodian to transfer your desired amount.

For More Information
It is wise to consult tax professionals if you are contemplating a gift under the new law. Please feel free to call Susan Newlin at 800.849.8771 x241 or snewlin@sherman.edu with any questions.