Giving Pre-tax Dollars to Ministry

Ken Davis
President
Church of God Foundation

Pastor, when you pay (or your people) tithes or give money to ministry, you are, typically, donating money after you have paid income taxes on it. What if you could donate money before taxes are withheld? Now, you can if you are

70½ and older.

On August 17, 2006 President Bush signed the Pension Protection Act of 2006. This law permits charitable rollovers of IRA funds. Rollovers during 2006 or 2007 may be made in any amount up to $100,000 for each year and shall be called "qualified charitable distributions."

IRA Rollovers to Public Charities. IRA rollovers must be to public charities by IRA owners 70½ and older. Only regular and Roth IRAs qualify for the rollover. Donors with other qualified retirement plans may be able to roll them over to an IRA and then use the IRA rollover to make a gift.

IRA Rollover Effective Now. The IRA rollover is effective immediately. IRA owners should contact their IRA custodian to direct transfers to qualified public charities. The good news is that the IRA distribution to charity will be similar to non-charitable IRA rollovers in that the distribution will not be included in the donor's federal taxable income.

Simplifies Tax Return; Qualifies as Required Minimum Distribution. While there is no charitable income tax deduction for the IRA rollover, the important point is that distribution is not included in the donor's taxable income, thus simplifying the donor's tax return and saving income tax. An added bonus is that an IRA rollover by Dec. 31 of this year will qualify for all or part of the IRA owner's required minimum distribution for 2006.

Who May Want an IRA Rollover? Charitable IRA rollovers will be favored by at least five types of IRA owners.

• Convenience Donor. An IRA Convenience Donor will merely enjoy the easy, simple way to make a charitable gift.
• Standard Deduction Donor. The Standard Deduction IRA Donor will avoid taking the IRA distribution into income. The IRA rollover for all or part of the required distribution will benefit charity. But it results in lower taxable income for the standard deduction donor.
• Social Security IRA Donor. The Social Security Donor may be taking an IRA required distribution that increases income to a level where 85% of his or her Social Security is taxable. By using the IRA charitable rollover, his or her income may be lower and only 50% of Social Security payments may be taxable.
• Generous Donor. The Generous Donor may give over 50% of income by using an IRA for charitable gifts over the usual deduction limit.
• Major Donor. A Major Donor may give the full $100,000 per year. Avoiding an additional $100,000 of taxable income may save substantial income taxes not otherwise available due to deduction floors and phase-outs at the higher income level. The IRA rollover will be favored by many major donors and their tax advisors to simplify taxes and keep income levels lower.

As you make your people aware of this important change in the tax laws, have them call Ken Davis, President, the Church of God Foundation, 423-478-7179 if they have any questions.

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