Make This a Priority: IRA Charitable Rollover

The U.S. Congress did nonprofits a favor last year when it extended the individual retirement account (IRA) charitable rollover for 2008 and 2009, allowing older Americans to contribute directly to public charities from their IRAs.

Yet, many nonprofit fundraisers aren’t pursuing this source of gifts because they think it’s too complicated (this thinking is wrong) or because they think the tax benefits are nonexistent or too modest, depending on the donor’s situation.

Since few organizations are focusing on IRA charitable rollovers, this creates less competition for you. Moreover, although the legislation did remove some of the tax incentive for IRA charitable rollovers, research shows that few donors are motivated primarily by tax consequences; rather, your mission moves them.

Plan to get these gifts by focusing on the special joy donors can get from giving today, when they can witness the benefits to their community before their death, rather than later through their estates.

Tips for Targeted Outreach

Review your donor lists first. Look for formerly involved and/or consistent donors or volunteers who are older than 70½. You are still keeping them close to you with frequent stewardship and agency results reports that are cast in human terms, aren’t you? Give them the news that they have a special opportunity to donate unneeded retirement assets to your agency and will enjoy seeing the benefits to their community before their death.

(Personally, I’m confident that I’m enjoying my current charitable giving more than I will my estate gifts. Explain to your donor why they might want to see it this way too.)

Double-check the law, and educate these potential donors about what the Internal Revenue Service says: “A Qualified Charitable Distribution (QCD) is a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions.”

A donor may give up to $100,000 in QCDs this year. For joint returns, the spouse can contribute the same amount. As I mentioned, your donor must be at least 70½ years old when making the distribution and you must acknowledge the gift just as you would for a conventional charitable contribution. In general, while the distribution is nontaxable, it is not tax deductible.

Use every communication channel available to you. Put it on your website—older adults are becoming more tech-savvy every year—and make sure this giving opportunity is headlined in your publications. Do your agency’s philanthropic materials carry a phrase such as, “Leave a legacy,” “Help a child,” or “Remember the agency in your estate plan?” If so, this year consider adding, “IRA distributions to the agency are tax free in 2009. Consult your financial professionals for details.”

Remember to make a point of explaining and touting this change at a board meeting, ideally by having a board member with professional expertise explain it. Also remind board members occasionally through November 2009.

Perhaps the best outcomes from the revived QCD are the opportunities you have to talk about gift and estate planning in general. The QCD becomes your “news peg” for an important, broader discussion.

Economic downturns often discourage board members and staff from asking for gifts of $1,000 or more. Yet, the research shows that many major gifts are still being made and have been throughout every recession since the 1960s. Philanthropic support is remarkably steady regardless of the economy, especially for child- and family-serving organizations.

So, ask respectfully and think big. Once you have asked for the gift, don’t back peddle by citing all the reasons the donor might not want to give. Make the “ask,” and then wait. Eventually the prospective donor will speak.

Your Gift Planning Toolbox

The IRA charitable rollover is one opportunity among many that the friends of your agency have to help your cause financially with major gifts through carefully planned giving. Share these opportunities with your donors and friends; the rewards take time to mature, but are heartfelt expressions of support for your core mission. In fact, telling the story of the differences such gifts have made in the past to your human service delivery will help inspire accelerated future gifts.

Gift planning can be complex. Several commonly used types of gifts are popular with donors and are possible for your agency to solicit. Smaller agencies often rely on a local community foundation for help in investing large funds and endowments. Such partnerships also inspire donors’ confidence that the assets will be managed appropriately. Annuities, estate gifts, insurance policies, and beneficiary designations should be a part of every agency’s vocabulary. Board policies should be in place for such gifts, as well as for gifts-in-kind, especially real estate.

Include information about IRA gifts of all kinds in your communications with donors. A charitable beneficiary designation on an IRA is the only one—besides that for a surviving spouse—which passes tax free. Some taxes are avoided if a charitable gift comes from an IRA, while legacy gifts to friends and relatives, other than a spouse, are from non-IRA assets.

Of course, this column does not give legal or tax advice, and you should not either unless you are qualified. Even so, you are not independent in your relationship with a prospective donor. The donor should seek personal professional counsel. In fact, remind your donors that their professional tax counsel should be consulted for IRS filing purposes. Yet, it is our job and duty to inform friends, constituents, and stakeholders of giving opportunities Congress has provided for the public good. 

Remember: 

• Retired professionals are especially good prospects for the QCD, but don’t assume other past donors and volunteers lack excess retirement assets.

• Be sure to brief your board, committee members, and all other volunteers about this and other simple forms of gift planning.

• You are likely to be surprised by who can help, and by whom they know and can direct to your agency.

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