Last fall President Bush signed the Pension Protection Act of 2006. It was called the most sweeping reform of Americas pension laws in 30 years! Most of the 393 page document deals with protecting existing pension funds. However, there is a portion of the act that may affect the way you contribute financially to World Mission Prayer League or other charitable organizations. That is the portion dealing with IRA rollovers.
In short, this portion of the Act allows individuals over the age of 70 to make a charitable contribution directly from their IRA to a charitable organization. The advantage of this is that the amount transferred out of the IRA will not be counted as income to the donor. Making a donation this way could reduce your tax liability at the end of the year but it is not guaranteed to be the best way for you to make a charitable donation. It is recommended that you ask a tax advisor to analyze your particular situation to determine if it is right for you. Here are some factors that make this method of giving advantageous:
1.If you are presently taking a Minimum Required Distribution (MRD) from your IRA you may be incurring a substantial tax liability from it. Or, it could be that your MRD pushes you into a higher tax bracket affecting your tax liability on all of your income. A contribution from an IRA to World Mission Prayer League will count towards your MRD and it will not be considered income to you. You may be able to meet your MRD and your charitable contribution goals while remaining in a lower tax-bracket.
2.For many the MRD has an effect on the taxable Social Security Income (SSI). There are limits to the amount of other taxable income one can receive before SSI becomes taxable. If your MRD is affecting the amount you are taxed on Social Security Income an IRA rollover may reduce the tax liability on Social Security Income or even eliminate it.
There are a couple of other points of interest.
An IRA Rollover does not qualify as a charitable donation. The benefit to you is that the amount withdrawn from the IRA is not considered taxable income.
For now the opportunity to do this is only available until Dec. 31, 2007. There is pending legislation that would keep this law on the books beyond 2007 and even broaden its use.
If you are over the age of 70 and you are taking an MRD from your IRA this may be of benefit to you and to the Prayer League. Please make sure you contact your tax advisor to discover if an IRA rollover is a beneficial way for you to make a charitable donation. If you have any other general questions about this law or if you would like the name of a tax advisor who can help you with specific questions feel free to give me a call at the Prayer League offices 612-871-6843 of write me an email at jdahl@wmpl.org.