September 29, 2009

Plans for IRA donations unclear

A reader from Westminster, Colo. asks the following important questions of Tom Herman in the Wall Street Journal.

Is there any chance that Congress will allow IRA holders to once again donate money directly from an IRA to a charitable organization in 2010?

And Herman's answer:

"Yes, but it's still too soon to know what will happen.

Right now, Congress is focusing on health-care issues. But lawmakers are expected to focus on this and many other tax-related issues later this year.

[The] reader is asking about one of many tax laws scheduled to expire at the end of the year. This one generally allows individuals age 70 1/2 or older to move as much as $100,000 a year directly from an individual retirement account to a qualified charity -- without having the money transferred considered taxable income.

"You do not include the distribution in your income," the Internal Revenue Service says.

The key word here is 'directly.'To be valid, the transfer must be made directly to the charity. Many charities love this provision and are rooting for an extension. They say its existence in recent years has led to many gifts that might not otherwise have been made.

President Obama proposed a one-year extension of the provision as part of his budget earlier this year.

'The current expectation is that an 'extenders' bill [to extend the life of tax laws scheduled to expire] will be taken up late this year,'says Timothy Hanford, a tax consultant at ADC Strategies in Bethesda, Md. 'The betting is that all of the provisions expiring in 2009 will get extended.'

But the timing is unclear. 'There is some possibility that the extenders [bill] will be put off until next year and then extended retroactively,' says Hanford, who also is a former House Ways and Means Committee tax staffer. 'The nonstop focus on health-insurance reform has really pushed everything else off.'"

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