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Friday October 13, 2006

New pension law opens door for charitable donations

by steven friedman
correspondent

Donating money to Jewish philanthropies and other charitable organizations may have just become easier. With President Bush’s signature on the Pension Protection Act of 2006 in August, individuals can now transfer even larger sums of money to charities without tax consequences.

“With the passing of the PPA, no reporting of income or deductions is required for up to $100,000 in charitable giving,” said Jennifer Kuhlman, a certified public accountant with Scott B. Price and Company in San Francisco.

“Prior to the passing of the PPA, if a taxpayer were to draw money out of their IRA and make a charitable contribution, the individual would then be required to report the distribution as taxable income and claim a charitable deduction. Often the resulting deduction was subject to limitations and did not fully offset the income reported.”

Jewish organizations are already reaping the benefits provided by the pension reform, said Phyllis Cook, executive director of the Jewish Community Endowment Fund. “We have a number of donors who have made contributions” since the PPA became law.

The S.F.-based Jewish Community Federation’s endowment fund has been extremely proactive about informing donors of the new law. Not only did the fund send out notices to donors informing them of the PPA’s provisions, but JCEF also hosted a series of educational forums, according to Cook.

“We have three committees that meet regularly” to discuss relevant issues related to donor contributions, such as the PPA, said Cook, who oversees a fund with $1.8 billion in assets that grants over $250 million annually. Cook has also been to Washington, D.C., for special briefings on the law and its impact on philanthropic agencies.

The new pension act is specific about how an individual can transfer money from their Individual Retirement Account. One must be 70 or older to distribute 4.5 percent from an IRA up to $100,000 per year tax-free through Dec. 31, 2007 (or $200,000 for married couples filing jointly). Gifts can be made both this year and next.

In addition, said Cook, “distributions must be made directly by the IRA trustee to a qualified charity. This amount will be excluded from gross income, provided the distribution would be otherwise taxable.”

But, she added, “contributions to donor-advised funds, supporting organizations, private non-operating foundations, charitable lead trusts and life income plans such as charitable remainder trusts, pooled income funds and charitable gift annuities do not qualify for favorable IRA distribution treatment.”

Previously, said George Frankenstein, a San Francisco-based financial adviser for 40 years, people were hesitant to take money out of their IRAs because of the tax hit. But the PPA, said Frankenstein, allows people to trim their taxable assets.

“A lot of the PPA’s benefits are psychological,” said Frankenstein. “People have large IRAs that they want to reduce, so giving up to $100,000 is a feel-good thing that will suffice for one’s minimum distribution. And it can help people from going up a tax bracket.”

Like the JCEF, Frankenstein has already helped clients with several distributions under the PPA, most recently involving contributions to the JCF and the Israel Emergency Fund. Community organizations and synagogues across the country are also reporting donations made with the PPA in mind.

Kuhlman, Cook and Frankenstein all agree that the potential windfall to Jewish organizations from the PPA could be great and is a win-win situation for donors and charitable groups.

“This law is a boon to the Jewish community,” said Frankenstein, “because it loosens up people’s money.”

Put simply, said Kuhlman, “the PPA creates a tremendous opportunity to increase deductible charitable giving by utilizing traditional IRAs.”

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