Public Good IRA Rollover Act of 2009

Just to refresh everyone's memory, in August 2006, then President Bush signed the Pension Protection Act of 2006 (PPA 2006), which gave individuals at least 70 1/2 years old the opportunity to make a charitable gift of up to $100,000 a year in 2006 and 2007 from their IRAs, as long as it went directly to a charity. The money could not come from any other qualified retirement plans such as a pension or 403(b), 401(k), etc. and it was limited regarding donative intent. However, as long as it never touched the donors' hands, it enabled people with large enough IRAs to make a donation without negative tax consequences: there was no charitable deduction, but there was also no taxation on the distributed funds, which could also be applied towards the required minimum distribution.

Among the restrictions was the gift could not go towards a split interest entity such as charitable remainder trust or charitable gift annuity.

This law was allowed to expire at the end of 2007. It was not reinstated as PPA 2008 until much later in that year (retroactive, believe it or not - I wonder how that was supposed to work?!?) with the proviso it will expire at the end of 2009. By the time it was passed, many IRAs were down 30%-40%. Other types of retirement plans had also suffered. Why would anyone make a gift from a much depleted IRA when it's a resource for the security of their retirement income?

The good news is at least there is more thought behind the potential new legislation:

On April 22, 2009, Sens. Byron Dorgan (D-ND) and Olympia Snowe (R-ME) introduced the Public Good IRA Rollover Act (S. 864). This legislation would make the IRA Charitable Rollover permanent, remove the $100,000 annual limit on donations, provide IRA owners with a planned giving option starting at age 59 1/2, and allow for distributions to supporting organizations, donor-advised funds, and private foundations. S. 864 has 11 original cosponsors, including four Democratic members and one Republican member of the Senate Finance Committee. Companion legislation (H.R. 1250) was introduced in the House last month. (Excerpt from the Planned Giving Design Center)

First, people as young as 59 1/2 can take advantage of it, greatly increasing the potential number of donors using this method. Second, it eliminates the $100,000 annual ceiling (who thought that one up anyway?) increasing the potential gift sizes. Third, we don't have to worry it will expire then have to wait half the year hoping for its renewal - it will be a permanent law.

And: the present versions of the Public Good IRA Rollover Act of 2009 allow for contributions to split interest gifts. I'm guessing lots of charitably inclined people aged 59 1/2 and older will decide to move some funds from their IRAs--which can be very vulnerable to market fluctuations--and place them into charitable gift annuities, which offer guaranteed attractive rates that are good for life.

Question One: I'm assuming that married people will want to have joint annuities with spouses so the income doesn't stop when one dies. But charitable gift annuities have to be funded all at once. So how will separate IRAs coordinate the transfer? Also, what happens with divorce situations? It's easy to change beneficiaries on an IRA now, but joint charitable gift annuities are totally another story.

Question Two: How will the securities markets react to a potentially large sell-off when they're already so weak?

Question Three: How will rates and reserve requirements change for nonprofits who are guaranteeing the returns?

Question Four: Will more funds go to charitable remainder trusts so that future generations can receive the income too?

Of course, this is not the first time this legislation has been "discussed" in Congress and there have been numerous failed attempts in the past. We'll just have to wait and see if it's passed and what will ultimately survive in the new law.

As you can see, there's a lot to think about.