New pension law provides additional benefits to Ohio
GREATER AKRON — A new federal law allows owners of individual retirement accounts (IRAs) to share the wealth of their retirement savings by giving directly to charitable organizations — without first counting it as income or paying income tax. Residents of Ohio could save an additional 3 percent to 6 percent for every charitable gift they make from their IRAs.
A provision in the new federal Pension Protection Act of 2006, signed by President George W. Bush Aug. 17, creates a new option for philanthropy-minded residents to transfer IRA assets directly to charity. By going directly to charity, the money is not included in the IRA owner’s income and is not taxed — preserving the full amount for charitable purposes. The law covers all gifts made this year and next.
While Ohio is one of the few states that don’t allow a state income tax deduction for charitable gifts, it must now honor the new federal law. This means Ohio donors can make a gift directly from their IRAs and avoid the state tax entirely. Under the prior law, donors may have had to report taxable income from their IRAs without receiving an offsetting state tax deduction. Now, many Ohio donors can save up to 6 percent for each charitable IRA transfer.
The new law could be a boon to local philanthropy.
“This is a great opportunity for local residents,” said Jody Bacon, president of the Akron Community Foundation. “Donors can support the foundation with a new set of resources while growing its permanent endowment, thus increasing support to local nonprofit organizations.”
Since 1974, millions of Americans have saved billions of pretax dollars in IRAs. An estimated $3.6 trillion is currently invested in IRAs, and the total continues to grow.
Many of today’s retirees have more money in their IRAs than they’ll ever need and have expressed an interest in giving the funds to charity. However, income tax must be paid on all withdrawals, which sharply reduces the value of the gift. Others have asked about designating their children as beneficiaries, but that may draw additional tax consequences.
“For larger estates, a good portion of IRA wealth goes to estate taxes and income taxes of beneficiaries,” Bacon said. “Experts estimate heirs will receive less than 25 percent of most IRA assets that pass through estates.”
In 2006 and 2007, holders of traditional and Roth IRAs who are at least 70 years old can make direct charitable transfers up to $100,000 per year. As a qualified public charity, Akron Community Foundation can help donors execute the transfers and choose from several charitable fund options for their gift. Donor-advised funds do not qualify for tax-free IRA transfers.
“This is a limited-time offer; the window is open now, but it will close in 2007 unless Congress extends it,” Bacon said. For more information, contact Bacon at (330) 376-8522.
This information was provided by the Akron Community Foundation.