Important Tax Bulletin

Tax-Free distribution to charity in 2006 and 2007 if age 70 ½ or older.  The Pension Protection Act of 2006 allows a, tax-free, direct transfer from a traditional or Roth IRA to a charity to be excluded from income, up to $100,000 per year in each of 2006 and 2007.  You must be age 70 ½ or older on the date of the distribution, and it must be transferred directly by an IRA trustee to a qualifying charity other than a “supporting organization” or donor advised fund.  A charitable deduction cannot be claimed for the amount of the excludable distribution.  A qualifying charitable distribution counts against the required minimum distributions that the IRA owner must otherwise receive.

The exclusion is not allowed unless the entire distribution would be deductible as a charitable contribution (had you received the distribution and contributed the proceeds), without regard to the annual percentage-of-income ceilings.

Since a qualifying transfer is not included in adjusted gross income, you may be able to preserve eligibility for income-based tax breaks such as the right to convert a traditional IRA to a Roth IRA and the $25,000 loss allowance under the passive loss rules.  The exclusion may also help limit the amount of Social Security benefits subject to tax.

Remember, on questions related to your personal taxes, it is advisable to consult with your tax advisor or CPA.

For additional information, please contact:

Chuck Bestor

Administrator

(979) 776-9977

cbestor@cbcbryan.org

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