2021 is the final year for the “Quasi-Rollover” unlimited pension plan at charity.
The COVID Relief Act (the “Law”) passed by Congress and signed by the President on December 27 extended the unlimited charitable contribution for cash donations to most public charities until the end of 2021. This creates a once in a lifetime event. ability to transfer substantial amounts from pension plans to charities beyond the qualified charitable rollover of $ 100,000 already allowed to IRA owners without negative tax consequences.
Suspension and relaxation of percentage limits for cash gifts
Section 2205 of the Act extended until the end of 2021 the CARES Act’s elimination of the percentage limitations in Section 170 of the Internal Revenue Code (“Code”) on most cash donations. to public charities. Under the law in effect before this change, cash contributions to a public charity were limited to 60% of a taxpayer’s adjusted gross income. (Due to a drafting error in the 2018 tax legislation, it appears that the 60% percentage limitation is only allowed to taxpayers who do not make any contributions other than cash in the same year. was expecting this to be corrected by technical fixes, but this has not yet happened. As written, this is not a problem with the 100% cash deduction limit. If a contribution exceeds a donor’s adjusted gross income, the excess may be carried forward to subsequent years, but subject to percentage limits in carry forward years.
Planning strategies with suspended percentage limits for individual cash donations
Section 408 (d) (8) of the Internal Revenue Code allows an IRA beneficiary who has reached the age of 70 and a half to have up to $ 100,000 which goes directly from the IRA to a public charity. The distribution does not enter the income of the recipient of the IRA (and is not deductible), but may allow the donor to use the standard deduction while benefiting from the removal of the required distribution of income. But many donors would like to be able to use the IRA to raise more than $ 100,000 to charity and for the remainder of 2021 this will be possible, not as a Section 408 transfer, but due to a provision of the CARES law which was extended by the end of 2021 by the Covid law.
As noted, Section 2205 of the CARES Act, extended through 2021 by the COVID Relief Act, removes the Code Section 170 percentage limits on most cash donations to public charities. Due to the unlimited charitable deduction allowed for cash donations to most public charities this year, a taxpayer who has reached the age of 59 and a half can in fact perform a free “near-roll”. tax any amount to a charity in 2021 by making a taxable withdrawal from an IRA or other pension plan that will be included in income, donating the money to a public charity and completely offsetting the income through the deduction unlimited charity, regardless of the amount. This can present real opportunities for charities and donors. For all years other than 2020 and 2021, the only way to transfer a large pension plan to a tax-free charity was upon death by beneficiary designation. But for the remainder of 2021, the IRA can sell assets if needed and distribute the proceeds in cash to the IRA holder, who can then donate them to charity and deduct them from any amount regardless. percentage limits. It might have been even simpler if Congress had just suspended the $ 100,000 limit on IRA charitable rollovers for 2020 and 2021. But there’s more – what the law allows is even better than that. Only IRAs can perform direct charitable rollovers. But the strategy outlined above will also apply to 401 (k) and other pension plans, always assuming of course that the account holder can withdraw the proceeds without penalty. Donors should, however, consult their tax advisors and do the math. The IRA or some other distribution plan goes into adjusted gross income which can affect other things on the return, although most taxpayers who can afford to donate more than $ 100,000 to charity are probably already subject to AGI thresholds. But you have to do the math!