Giving this holiday season has taken on a whole new meaning for IRA owners over age 70 ½ since congress, in an exceptional move, created a Code addition last year unlocking the $4 trillion national IRA vault 1 for direct, tax-free, charitable transfers that benefit the donor as significantly as the charity. Four trillion dollars, put in perspective, would make Bill Gates’ wealth appear but a blip on the radar screen. Even if the top 20% of the wealthiest IRA owners, mostly over age 65, who own 80% of the IRA dollars are counted, there’s still a huge sea of cash unallocated by owners and unclaimed by charities. But who’s talking?

This could be the best kept secret since Vice President Cheney’s role in outing former CIA agent Valerie Plame Wilson. For national benevolence purposes, I’ll reveal this code, or at least its high points: When congress passed the Pension Protection Act (PPA) in 2006 one of many monumental changes was the allowance of Qualified Charitable Distributions (QCD) of up to $100,000 per year directly from an IRA to a public charity as defined in Internal Revenue Code (IRC) section 170(b)(1)(A). In short, transfers to donor advised funds or to charities where the donor received any benefit, like tickets to a game or performance, are not allowed. Under pre-2006 law, IRA owners had to first take taxable distributions from their IRAs and then write a check that was only partially deductible to charities of choice. Who benefits most and how?

People who benefit the most are those who:
Are at least age 70 ½
Are currently supporting or wish to support charities and their communities
Have over $100,000 per person aggregate in traditional IRAs
Have excess income from Required Minimum Distributions (RMD) that they do not need now
Have 2007 countable Social Security earnings totaling over $34,440
Want to reduce their income taxes
Have a total net worth over 1 million dollars per person and are concerned about estate taxes
Are willing and able to act before December 31 2007
Anticipate a one-time higher income for 2007, for example, a lump sum distribution or bonus.
Wish to redirect dollars destined to the IRS to their charities of choice

An American axiom is that if someone earns a lot they’ll be taxed a lot. The biggest benefit of charitable IRA giving is that it reduces taxes in many, many, ways. Here’s a few:
1.No double whammy tax on IRA distributions that first tax the IRA RMD and then tax one out of every three dollars over the Social Security threshold of $34,440. Charitable IRA gifting can keep taxable income low and permit more Social Security dollars to reach IRA owners and have less of their benefits subject to Social Security double taxation.
2.May allow assisted living residents above, or close to, income thresholds to go to or remain within low income guidelines and retain benefits allowing continued or newly qualified independent living status.
3.Each dollar given via a charitable IRA gift counts as 100% toward a RMD.
4.Gifts have no Adjusted Gross Income (AGI) 20%, 30%, and 50% limits as in traditional giving. For example, someone with an AGI of $20,000 may take a tax deduction on only $6,000 (0.3 x 20,000) to a 30% public charity from a taxable account, but can benefit from a full $20,000 donated directly from a traditional IRA to that same charity. Although no charitable tax deduction is allowed in the latter, the donor benefits by channeling their RMD dollars to charity – lowering AGI.
5.Smartest strategy: IRA dollars are subject to both estate and income taxes. Donor’s Estate tax liability shrinks a dollar for each dollar given to charity. Most of us do not like to think that estate tax may consume up to half of our total wealth, the wealth we thought we were transferring to family at death. This tax is in addition to income tax paid on the year of death. For some, federal income and estate taxes could consume most of their wealth – over 70%. Since traditional IRAs are the most highly taxed of all assets, it certainly makes sense to designate these dollars first for charity.
6.More medical expenses are deductible as the 7.5% of AGI barrier shrinks in step with a lower AGI
7.More miscellaneous deductions qualify above the 2% AGI floor for a larger tax break
8.Allows donors to stay in or move to a lower tax bracket. Tax brackets range from 0-35% for 2007. Lower tax brackets provide the biggest deductions and benefits.
9.Itemized deductions and personal exemptions that would otherwise be phased out (disallowed) because they were driven by RMD forced income, may shrink or disappear.
10.Lowering RMD driven AGI could lower Social Security part D premiums
11.Charitable IRA giving may avert triggering Alternative Minimum Taxes (AMT)
12.More dollars may qualify for contributions to Coverdell Education Savings Accounts in support college education of grandchildren.
13.Those who forget to take IRA distributions based on the aggregate sum of all their IRAs face a 50% penalty for failure to take a timely distribution, generally before December 31st. In contrast, those who donate their IRA to charity this year can qualify for up to a full required minimum distribution amount and avert this penalty.
14.Last, but not least, a charitable IRA gift provides peace-of-mind of supporting charitable communities with big tax-saving dollars. It’s giving smart through the heart.

Can’t give this year? The new law says that from now on you may make a public charity an IRA beneficiary. You can leave any percentage from 1-100%, to charities of your choice. You may name them as primary or contingent beneficiaries. A primary beneficiary also has the option of disclaiming his or her share, or any percentage thereof, to the contingent beneficiary. If the latter is a charity, a primary beneficiary can reduce his or her taxable income by disclaiming a portion of the assets in favor of the charity.

So if you’ve ever dreamed of being Santa Claus, now’s your great chance. Perhaps the IRS is hoping nobody’s paying attention because they already have a siphon attached to every traditional IRA. Pay now or pay later, but pay you will, except of course if you want to be Santa. Now you have a singular chance make a huge and lasting impact well beyond 2007 by switching from writing charitable checks to channeling IRA dollars now destined for taxation to your favorite public charities. But don’t wait, like holiday festivities, the lights go out on this opportunity on December 31 2007 and the secret code vanishes like a phantom into the long winter night.