What’s the “IRA Rollover Provision”?

Dear Kim,

Would you explain in plain language the “IRA Rollover Provision”? I know it has been made permanent and it is a good thing, but I am still hesitant to mention it to anyone because I am not exactly sure what it is.

~Rolling Over With Anxiety

Dear Rolling,

The Independent Sector has a pithy explanation: “The IRA Charitable Rollover provision allows individuals who have reached age 70½ to donate up to $100,000 to charitable organizations directly from their Individual Retirement Account (IRA), without treating the distribution as taxable income.” What I think is puzzling to people younger than 70 ½ or who don’t have savings in an Individual Retirement Account is why pick that age? The reason is because you have to start taking money from your IRA when you reach that age. When you take money out of an IRA, you pay income tax on the distribution (which you avoided when you put the money in your IRA). This tax rate is generally much lower than the tax rate was when you earned the money, but it is still taxable. For people who have other sources of income and don’t need the distribution this is apparently annoying. So, off and on for many years, the IRS has said if you are the right age, and if you give the money directly to a nonprofit, you can again avoid paying taxes on that distribution. This law is now permanent as part of the PATH Act (Protecting Americans from Tax Hikes) signed into law by President Obama on Dec 18, 2015.

I would also say that if you want to see this information in plain English, go to any website of any large nonprofit (a hospital, university, large museum) and look at how they describe it.

Good luck.

~Kim Klein