Sr. Georgette Lehmuth, OSF and other members of the IRA Charitable Initiative met with Rep. Kevin Brady (TX), Chairman of the House Ways and Means Committee today. The meeting took place in Rep. Brady’s office. Rep. Kevin Cramer (ND), who has sponsored and championed the IRA Legacy Bill and arranged the meeting for us, and Rep. David Schweikert (AZ) were also present.
With healthcare reform off the table for now, all attention is turned to tax reform.
An updated Legacy Act bill, H.R. 1337, was introduced by Rep. Kevin Cramer (R-ND) on March 2. Additional co-sponsors include Rep. Earl Blumenauer [D-OR], Rep. Patrick Tiberi [R-OH], Rep. Erik Paulsen [R-MN], and Rep. Kristi Noem [R-SD]. As always, if you are represented by one of these co-sponsors, we encourage you to thank them for their support of this bill. If your representative is not yet a sponsor, contact them and encourage their support.
We are asking all members and Catholic fundraisers to contact their representatives and ask them to co-sponsor this bill. Our hope is to have the bill included in an Omnibus Ways & Means bill that will be reported out by the Committee and be passed by the House (and then sent to the Senate) this session.
- Charitable IRAs will include life-income gifts
- Empowers gifts by the middle class
A Life-Income Charitable IRA Rollover bill is close to being introduced by Representatives Peter Roskam (R-IL) and Kevin Cramer (R-ND) and they are seeking bipartisan Ways & Means Committee co-sponsors and support.
Individuals age 70½ or older can make direct (outright) gifts from an IRA of up to $100,000 per year to public charities (other than donor advised funds and supporting organizations) and to private operating and passthrough (conduit) foundations without having to report the IRA distributions as taxable income on their federal income tax returns. A charitable deduction isn’t allowable.
First enacted in 2006, this law was made permanent by the PATH Act of 2015. Direct IRA rollovers have helped American charities feed the hungry; and provide education, medical services, housing assistance, and myriad other services that Americans need.
The expansion in the LEGACY IRA bill authorizes tax-free IRA rollovers for gifts that benefit charities and provide taxable retirement income—charitable life-income plans—for the donors. At the donor’s death, the assets in the plan are owned outright by the qualified charity. Charitable deductions aren’t allowable for amounts transferred to the life-income plans (charitable remainder trusts and charitable gift annuities).
Qualified charities. The same donees authorized for direct outright transfers to charities (see first paragraph).
Annual ceiling on transfers from a donor’s IRA for a life-income plan: $400,000, for individuals 65 or older. For individuals 70½ or older, the combined ceiling for direct and life-income transfers from their IRAs is $400,000, with a $100,000 cap for direct transfers.
Satisfaction of Required Minimum Distributions. The types of life-income plans assure that the annual taxable payments will generally be equal to (or greater than) what individuals must receive under the required minimum distribution rules had they kept the funds in their IRAs instead of rolling them over for charitable life-income plans.
Minimal revenue cost to the government. Under the authorized life-income plans, the IRA owners will be taxable on income received at ordinary income tax rates. Because the payouts are 5 percent or more, there generally will be more income paid from the charitable life-income plans than under the normal minimum required distribution rules. The only authorized income beneficiaries of the life-income plans are the individual IRA owner, his or her spouse or both of them. At death, the assets in the plan go directly to the named qualified charity or charities and not to family members.
Why wouldn’t IRA owners just give outright to charity (direct gifts) from their IRAs as provided under the now permanent law? Many IRA owners want to make charitable gifts, but also need retirement income. The life-income IRA rollover is a way for donors of average resources to combine charitable gifts with retirement income. Many charities have donors “standing by” to make life-income charitable gifts from their IRAs.
This is a Middle Class Charitable IRA Rollover. It allows average Americans (who meet the minimum age requirement) not just wealthy taxpayers to benefit charities.
Four-year trial for Life-Income Charitable IRAs. The provision wouldn’t be permanent but be for a four-year trial period. That provides adequate time to determine the expansion’s efficacy.
Cost. The bill’s cost is $106 million over 10 years. This is a small fraction of the money that charities will receive as a result of enactment.
Legislation whose time has come
The expansion of the now-permanent direct Charitable IRA to include charitable life-income IRAs is not a new idea. Bipartisan bills providing for both direct IRA charitable gifts and life-income IRAs have been introduced from the beginning of this century.
The current chairmen of the House Ways and Means Committee and the Senate Finance Committee have in the past co-sponsored legislation that would have allowed both direct and life-income transfers from IRAs. Those bills had a broader class of qualified charities than those designated qualified charities under the permanent direct charitable IRA law. And those bills had no ceilings whatsoever on the amounts that could be transferred from IRAs. (See below, Charitable Rollover Incentive Act of 2001 (H.R. 774) and Care Act of 2002 (S. 1424)).
- Neighbor-to-Neighbor Act of 2001 (H.R. 824). Introduced by House Ways & Means Committee member Rep. Jennifer Dunn (R-WA). Would have allowed direct and life-income charitable rollovers from IRAs. Co-sponsors: Brian Baird (D-WA); Ander Crenshaw (R-FL); Nathan Deal (R-GA); John J. Duncan, Jr. (R-TN); Philip English (R-PA); James C. Greenwood (R-PA); Melissa Hart (R-PA), C.L. Otter (R-ID); Bill Pascrell, Jr. (D-NJ); John Peterson (R-PA); Bob Schaeffer (R-CO); Michael K. Simpson (R-ID); Mark Souder (R-IN); Charles H. Taylor (R-NC); J.C. Watts, Jr. (R-OK); and Ed Whitfield (R-KY).
- Charitable Rollover Incentive Act of 2001. (H.R. 774). Introduced by Ways & Means Committee member Philip Crane (R-IL). Would have allowed tax-free rollovers from IRAs for direct and life-income charitable gifts. (Mr. Crane introduced similar legislation in the 1990's.) Co-sponsors: Kevin Brady (R-TX); Wally Herger (R-CA); Richard Neal (D-MA); Ronald Paul (R-TX); John Peterson (R-PA); Mike Rogers (R-MI); Mark Souder (R-IN); Bart Stupak (R-OK); Thomas Tancredo (R-CO); and Wesley Watkins (R-OK).
- The Savings Opportunity and Charitable Giving Act of 2001 (S. 592) introduced by Senator Rick Santorum (R-PA) and Senator Joseph Lieberman (D-CT). Would have allowed tax-free IRA rollovers for outright and life-income charitable gifts.
- Public Good IRA Rollover Act of 2001 (S. 1375) introduced by Senator Byron L. Dorgan (D-ND) and Olympia Snowe (R-ME). Would have allow tax-free IRA rollovers for outright and life-income charitable gifts.
- President George W. Bush in the wake of September 11, 2001. Donations to charities not involved in disaster relief had declined. In a letter to Senate Majority leader Tom Daschle (D-SD) and Senate Minority leader Trent Lott (R-MS), the President urged Congress to enact an “Armies of Compassion” law that would help struggling charities by providing additional tax incentives including tax-free IRA rollovers at age 59½ or older for both outright and life-income charitable gifts.
- Care Act of 2002 (S. 1924) introduced by Senators Joseph Lieberman (D-CT) and Rick Santorum (R-PA). Would allow individuals 67 and over to make tax-free distributions from IRAs for outright and life-income charitable gifts. Cosponsored by: Senator Orrin Hatch (R-UT); and Senators Sam Brownback (R-KS); Jean Carnahan (D-MO); Evan Bayh (D-IN); Thad Cochran (R-MS); Bill Nelson (D-FL); Richard Lugar (R-IN); and Hillary Clinton (D-NY).
Care Act of 2003 passed by the Senate 95-5. Would allow tax-free direct transfers from IRAs at age 70½ or over and life-income transfers at age 59½ or older, broader qualified charities than current law for direct IRA transfers and no annual ceilings.
The Charitable Giving Act of 2003 passed the House 408-13. Would have allowed tax-free transfers from IRAs for direct and life-income charitable gifts.
Both the House and Senate bills were passed by overwhelming majorities. The bills provided a number of tax incentives for charitable gifts, including the charitable IRA rollover for direct and life-income gifts. But a few senators wouldn’t consent to sending the Senate bill over to the House unless some unrelated provisions were added to the Senate bill. And those provisions weren’t popular with the House majority. Result: The House’s approval of the charitable IRA (408-13) and the Senate’s approval (95-5) did not go to conference.
- Charitable IRA legislation in 2004 (H.R. 4488). Would allow tax-free direct and life- income rollovers identical to the bill that passed the Senate (above). Co-sponsored by Rep. Jim Ramstad (R-MN) and Rep. Earl Pomeroy (D-ND).
The Public Good IRA Rollover Act of 2007—(S. 819) and (H.R. 1419). Would make all charities eligible recipients; be available for life-income gifts at age 59½ or over and outright gifts at age 70½ or over; and had no dollar cap for outright and life-income rollovers. Introduced by Senator Byron Dorgan (D-ND).
- The Public Good IRA Rollover Act of 2013. Would allow tax-free rollovers to all charities with no ceilings at age 59½ or over for life-income gifts and age 70½ or older for direct transfers. Introduced by Charles Schumer (D-NY). Co-sponsors: Senators Kirsten Gillibrand (D-NY); Mark L. Pryor (D-AR); Carl Levin (D-MI); Tim Johnson (D-SD); and Susan M. Collins (R-ME). Identical bills were introduced by Senator Schumer in two earlier Congresses.
Not a revenue drainer. The 10-year cost to the Treasury is only $106 million. Crucial to getting a tax bill enacted is knowing what it will cost. The Joint Committee on Taxation gets thousands of requests each year for the cost (score) of proposed legislation. Only about 200 are scored. The LEGACY IRA got the JCT’s attention and a favorable score—only $106 million over 10 years.
In a separate container. Individuals continue to benefit from their IRAs. Instead of the retirement assets being in IRA accounts, the assets are in life-income plans. Both ways, donors get retirement income and the government gets its taxes on required minimum distributions.
Answers to questions about the LEGACY IRA bill:
Q. Why is the minimum payout of the life-income plans 5 percent?
A. The minimum 5 percent payout for unitrusts and annuity trusts in the bill has nothing directly to do with the bill. The 5 percent minimum has been required by law since 1969 when unitrusts and annuity trusts were first authorized.
The minimum payout for gift annuities in the bill is 5 percent and that isn’t required by gift annuity laws. It is important, however, that the 5 percent minimum in the LEGACY IRA bill be for gift annuities as well as unitrusts and annuity trusts.
Reason. The bill was favorably scored (the cost to the Treasury) by the Joint Committee on Taxation based on a 5 percent minimum payout for all three life-income plans. That generally is at least as much as would be required under the required minimum distribution rules for IRAs. Thus the government won’t lose tax dollars if payments are made from the charitable IRA rather than the original IRA.
Caution for life-income IRA gift annuities. A charity should follow the rates that it offers for the usual gift annuities. If 5 percent is greater than the usual rate, the charity should not enter into an IRA life-income charitable rollover.
Q. Why aren’t Pooled Income Funds included in the bill?
A. Many pooled income funds earn less than 5 percent. Those funds are allowed to only pay income (and cannot pay out principal to make a 5 percent payment).
Q. Why can’t a LEGACY IRA be assigned to the named charitable remainder organization?
A. Policy. In dealings with Congress over many years on the Life-Income Charitable IRA, strong concerns have been expressed on the issue of assignability. If a donor can assign his or her charitable IRA, the possibility exists the donor won’t have sufficient retirement income; and might have to turn to the government.
A. Fiscal. The payments from the charitable life-income rollover will be fully taxable as ordinary income. If the donor assigns his or her income interest in a life-income charitable rollover to a charity, the government wouldn’t get taxable income from the charity as it would if the donor continues to receive the life-income rollover payments. And the donor could, in effect, increase the current $100,000 ceiling for direct rollovers to $400,000 each year.
These issues have come up over the years and most recently in meetings with the staff of the Joint Committee on Taxation.
A favorable score (cost to the government) of the bill of only $106 million over 10 years wouldn’t have been obtained if the life-income IRA beneficiaries could assign their interests to charities. If so assigned, the government would lose taxes on the income because charities are tax exempt. The score could have been in the billions, rather than $106 million over 10 years.