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New PPA Advice Also Applies To Charitable Planners

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The Internal Revenue Service has issued a batch of Pension Protection Act guidance that could be of interest to financial services professionals who work outside the retirement plan market.

The new collection of guidance, released in Notice 2007-7, includes answers to questions about PPA Individual Retirement Account charitable distribution provisions as well as answers to questions about PPA provisions dealing with matters such as retirement plan hardship distributions and rollovers of participants’ assets from retirement plans to IRAs owned by “nonspouse beneficiaries.”

The new qualified IRA charitable distribution rule, described in Section 1201(a) of the PPA, applies to individuals who are at least 70.5 and have used, or will use, IRAs to give money directly to charity in taxable years 2006 or 2007, officials write in the notice.

Topics included in the charitable distribution section include overall limits on charitable distribution exclusions and the types of IRAs that can make qualified charitable distributions.

Both a traditional IRA and a Roth IRA can make qualified distributions, but neither can make qualified distributions if it is part of an employee benefit plan, officials write.

An ongoing SEP IRA and an ongoing SIMPLE IRA cannot make qualified distributions, officials write.

In addition, the total amount of qualified charitable distributions per individual cannot exceed $100,000, officials write.

“If an IRA owner maintains multiple IRAs in a taxable year, and qualified charitable distributions are made from more than one of these IRAs, the maximum total amount that may be excluded for that year by the IRA owner is $100,000,” officials write. “For married individuals filing a joint return, the limit is $100,000 per individual IRA owner.”

In one of the benefit plan guidance sections, officials note that administrators of 401(k) plans and 403(b) plans can make hardship distributions for expenses such as medical bills and funeral expenses for a “primary beneficiary” under a plan as well as for a participant’s spouse or child.

Officials also confirm that a qualified plan can offer a direct rollover of a retirement plan to a nonspouse beneficiary.

A copy of the guidance is on the Web at Document Link