Qualified Plan Rollovers and Charitable Contributions from IRAs


During tax years 2006 and 2007, a taxpayer who is over 70 ½ may direct his or her IRA trustee to make a direct distribution (up to maximum of $100,000 each year) to a qualifying charity. Such distributions are not includible in the taxpayer’s gross income, but do not provide the taxpayer with a separate charitable deduction. Distributions from an IRA in excess of the $100,000 limit will not be carried over to future tax years and will be includible in the taxpayer’s income for the year of distribution; however, the taxpayer will be allowed a charitable deduction for such excess amount (subject to the regular percentage limitations).

Under current law, only a spouse may directly roll over benefits from a qualified retirement plan to an IRA; beginning January 1, 2007, a non-spouse beneficiary (presumably including a trust) will be able to direct the transfer of qualified plan benefits to an “inherited” IRA. While a spousal rollover IRA is treated as if the spouse had originally established it, an inherited IRA remains in the name of the decedent and plan benefits must be distributed in accordance with the distribution rules applicable to designated beneficiaries, including the required minimum distributions (“RMD”) rules applicable to the decedent. Also, an inherited IRA cannot be rolled over again at the beneficiary's death. The primary benefit of this new rule is that non-spouse beneficiaries of qualified plans will have the flexibility to elect payout over a longer period of time, even though the qualified plan may have only permitted a lump sum (subject to required distributions under the RMD rules for inherited IRAs).

The Act also makes permanent the $15,000 cap on annual contributions to 401(k)s and the $5,000 annual catch up provision for workers over 50, and these amounts are indexed annually for inflation.

For more information, go to Private Clients and Estate Planning. You may also view the article in the PDF below.

In order to comply with certain U.S. Treasury regulations, we are informing you that any U.S. federal tax advice that may be contained in this document is not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other U.S. federal taxing authority or agency or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

Email Disclaimer