New pension law opens charitable window for greatest generation
LAST WEEK President Bush signed into law the pension bill recently passed by Congress. In addition to pension rules changes, the act will provide a boost for charitable organizations. One group of IRA owners can now share the wealth of their retirement savings and take advantage of changes to our tax laws. Under the new law, people who are 70 or older can donate up to $100,000 a year directly from their individual retirement accounts (IRAs) to qualified charities, without first counting it as income and paying federal taxes on the distribution -- but only this year and next.
Avoiding increased taxable income
When you turn 70, you must start taking a minimum amount of money out of your IRA each year. Money you take out is added to your adjusted gross income (AGI) and is subject to federal and state taxes. Until now, the only way to reduce your taxes has been to donate the same amount to charity. If you itemize deductions, the charitable deduction can offset the additional tax on your adjusted gross income resulting from the IRA disbursement.
Prior to the passage of this new law, you would still have a higher adjusted gross income even though such donations reduced the taxes on your AGI. This increase can adversely affect other deductions if you are in a higher tax bracket such as reducing your deduction for medical and other expenses, as well as personal exemptions. And it could increase the tax on your Social Security benefits.
A gift that helps charities and donors
Qualifying donors who want to make a positive mark on our community have a two-year window of opportunity to take advantage of the charitable giving provisions of this new pension bill and help address Hawaii's most pressing needs. Thanks to the new law, you can transfer up to $100,000 of the funds in your IRA directly to a charity or foundation, and it will not be counted toward your adjusted gross income.
If you are thinking about making a donation, using funds from your IRA could be very attractive. Those interested in taking advantage of the new law should consult a professional tax adviser because there are certain restrictions that must be met in order to qualify for the tax break. For example, the donation must be made before Jan. 1, 2008.
Aside from the tax benefits, transferring IRA funds without restrictions to a nonprofit organization can do a great deal of good, supporting virtually every aspect of well being in our island community, including the arts and culture, education, the environment, health and human services. Qualifying individuals also can target gifts to their particular field of interest, such as youth welfare, AIDS services or any number of worthy initiatives.
For many estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries. Experts estimate heirs will receive less than 25 percent of most IRA assets that pass through estates. For those who want to make a positive difference for Hawaii, the next two years will provide a once-in-a-lifetime opportunity to re-direct IRA distributions from tax payments into a meaningful benefit to their community or cause.
Kelvin Taketa is president and CEO of the Hawaii Community Foundation. He can be reached at
kelvin@hcf-hawaii.org.