October 08, 2008

Bailout bill offers silver lining for UA donors

Some love it and some hate it, but the $700 plus billion federal rescue package is now law. Potential donors to the University of Alaska concerned about the taxes necessary to fund the bailout may, however, find something to cheer about in the new measure.

That’s because the bill revives the provision that allows individuals (70½ or older) to transfer funds from their Individual Retirement Accounts (IRAs) directly to a charity and not have to count those funds as taxable income. Congress previously allowed this incentive for the one year period following the Katrina disaster, but the provision expired on Dec. 31, 2007.

"The university received several major gifts of IRA assets under the provision while it was in effect last year," said Mary Rutherford, president of the University of Alaska Foundation, the non-profit entity that accepts and manages gifts made for the benefit of the University of Alaska. "We had been hoping for several months that Congress would re-institute the program. While we certainly aren’t happy that it took a financial disaster to get Congress to act, we are happy that it will give our donors another incentive to support the university and provide them with some tax relief in return."

The new measure allows donors to take advantage of this provision for all transfers made to charity during the 2008 and 2009 tax years. It will expire Dec. 31, 2009.

The revived law is essentially the same as the one that expired. It allows IRA owners who are at least 70½ to make gifts of up to $100,000 annually directly to a charity from their IRA without having to recognize the transferred amount as income for federal tax purposes. The amount given to charity also counts toward an individual's required annual minimum distribution from the IRA.

Donors gain several advantages under the revived law. First, the amount given to charity by an individual under the provision is excluded from his or her gross income. Previously an individual had to take the distribution from the IRA as income before making a gift of the funds to charity. While the resulting charitable income tax deduction sometimes resulted in a "wash," it often had the negative effect of increasing the individual's income and thus the percentage of an individual’s Social Security payments upon which they had to pay taxes.

Second, the transfers made to charity under the law do not count toward the 50 percent Adjusted Gross Income limitation on charitable gifts of cash. This allows donors with large IRAs but small incomes to make sizeable gifts without running into the limitation.

Finally, the law allows donors who do not itemize (and are thus ineligible for the standard charitable income tax deduction for gifts) to enjoy tax benefits for their gifts similar to those enjoyed by itemizers.

As with the previous IRA Charitable Rollover Law, restrictions include:
• The transfer must be made directly from the IRA account by its trustee to
the university;
• It cannot be used to fund life income gifts such as Charitable Gift
Annuities and Charitable Remainder Trusts;
• It may not be made in return for quid pro quo benefits given by the
charity to the donor;
• It is not eligible for a charitable deduction on federal income tax;
• And transfers may be made with taxable assets only.

Donors should consult with their tax advisors prior to making gifts under this law and should inform the university if their gift consists of an IRA Charitable Rollover, so the university may provide appropriate acknowledgments for tax purposes.

For more information, call Scott Taylor at (907) 450-8030 or email

Kate Ripley
Director, SW Public Affairs
University of Alaska
PO Box 755340
206 Butrovich Building
Fairbanks, AK 99775
(907) 450-8102 - office
(907) 388-3506 - cell