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Establishing an estate plan and reviewing it every few years is a necessary and important step to provide for your family’s future. As you work with your legal and financial advisors, keep in mind that gifts to charitable organizations may reduce tax liabilities and provide greater resources for your loved ones while supporting causes that have been important to you throughout life.

The vast majority of legacy gifts to nonprofits are made not through fancy annuities and other financial arrangements, but the old-fashioned way, through wills and simple devices such as living trusts and beneficiary designations on IRAs, 401(k)s, and life insurance policies. Charitable giving, when combined with estate planning, can reduce the taxes individuals pay now, and their beneficiaries will owe in the future.

One provision that was established as a tax saving measure for individuals was the Pension Protection Act of 2006. The provision permitted individuals to rollover up to $100,000 from an individual retirement account (IRA) directly to a qualifying charity without recognizing the assets transferred as income.

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act, which made the IRA Charitable Rollover a permanent provision.

pgsf_ira_rolloverThe law used the term “qualified charitable distribution” to describe an IRA charitable rollover. A qualified charitable distribution is money that individuals who are 70½ or older may direct from their traditional IRA to eligible organizations.

The provision has a cap of $100,000 for charitable distributions from individual IRAs each year. By excluding the gifted amount from gross income, the donor gets, in effect, a $100,000 charitable contribution deduction.

It is important to balance your income needs and the needs of your beneficiaries with the tax benefits of donating to a charity now, and after you are gone.

If you would like to learn more about an IRA Charitable Rollover or other tax-saving legacy gift options, we suggest conferring with your legal or financial advisor. You may also contact John Berthelsen, VP-Development at PGSF at jeff.white@pgsf.org.