Will Donors Make IRA Rollover Gifts in 2020? Yes, Here is Why...
Apr 08, 2020
Will Donors Make IRA Rollover Gifts in 2020? Yes, Here is Why... [Reposted]
By Kristen S. Jaarda J.D., LL.M.
Nonprofit Giving Expert | Philanthropy Advisor | Attorney | Trainer | Speaker | Author
I have talked with a number of fundraisers who have lamented about the "bleak" prospects for IRA rollover gifts in 2020. With the CARES Act required minimum distribution (RMD) holiday, donors lose out on the benefit of making an IRA rollover gift that counts against RMD this year. Also, many donors have seen their IRAs go down in the roller coaster market ride. They may be unlikely to make rollover gifts until IRA balances stabilize.
Will donors make IRA rollover gifts this year? I certainly thought the answer was no until I began thinking about all of the benefits for IRA rollover giving in 2020. Here are some ideas to consider:
- IRA Rollover Gifts Still Work!The SECURE Act pushed the RMD age back to age 72 and the CARES Act created a RMD holiday for this year. However, a donor age 70 1/2 or older can still make a direct transfer of up to $100,000 from their IRA to a qualified charity this year and exclude it from income, thereby avoiding tax on the transfer. Their gift just won't count against their RMD this year (There is no RMD for 2020).
- Gifts are Pre-tax!Even with the RMD holiday, an IRA rollover gift is still a great gift for a donor to make this year. In a high-tax state like California, it could cost a taxpayer $40,000 to make a $20,000 after-tax cash gift to charity. The same donor would be better off making the $20,000 gift from their IRA. They could avoid taxes and help a charity in a way they might not otherwise be able to do this year.
- IRA Growth is Untaxed.Even with the down market, many donors have experienced substantial appreciation in their IRAs over recent years. One of the benefits of an IRA is that it grows tax free. Most supporters age 70 1/2 or older who make IRA rollover gifts this year will give away the growth in their fund balances that wasn't taxed to begin with and receive added tax benefits for charitable giving.
- Later May Be Better for Some Donors.The disadvantage of a donor making an IRA rollover gift now is that their IRA may be worth substantially less than it was at the beginning of the year. A donor may not want to give away to charity IRA money that used to be worth $75,000 and is now worth $50,000. That may be a reason for some donors to wait to make an IRA rollover gift later in the year when markets are expected to be higher.
- Taxable Withdrawal + Deduction Option.A donor can still take a distribution from their IRA this year and make a tax-deductible charitable contribution to support their favorite charity. These distributions and gifts are unlimited! The deduction may be enough to completely offset their taxes on the gift. And again a donor would be making a pre-tax gift, which means helping their favorite cause this year will not impact their financial security.
On the practical side, making any "ask" is difficult right now. One commentator I read this week called directly asking donors for money when they have lost 30% of their retirement plan assets and are sick/dying or know someone who is, "tone-deaf." It's important for nonprofits to use appropriate donor messaging and offer reassurance to supporters during this time. The good news is that donors are still giving -- often without being asked. I hear every day about donors who contact the nonprofit causes they love and ask how they can help.
If you are a fundraiser and know someone who is asking for a way to support you and your team right now, an IRA rollover gift is an option they may wish to consider. It's a way donors can provide current assistance (that doesn't require an out-of-pocket contribution) and help charities continue to operate during this challenging time.
Original Link: https://www.linkedin.com/pulse/donors-make-ira-rollover-gifts-2020-yes-here-why-kristen/?trackingId=kvZWMuJUGjeGdaW9HhfkWw%3D%3D