New Pension Rules Allow Some Tax-Free Gift Options

New Pension Rules Allow Some Tax-Free Gift Options

On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 which includes provisions permitting some taxpayers to make gifts to charity from their individual retirement accounts without adverse tax consequences. Under the old rules, any lifetime distribution of funds from one’s IRA was included in one’s gross income and therefore taxable. The new law provides an exclusion from gross income of otherwise taxable distributions of up to $100,000 per donor per year from traditional IRAs and Roth IRAs made during 2006 and 2007 by plan owners who are at least 70 ½ on the date of the gift to charity.

How the new law works: Pat, who is 80, has $450,000 in her IRA and wants to give $75,000 to the UW School of Law this year. Under the new law she can transfer that amount directly to the law school from her IRA. Though she cannot claim an income tax deduction for this gift, she will not be taxed on the $75,000 withdrawn and so will suffer no adverse tax consequences by supporting her alma mater with a gift from her IRA.

For more information, you may contact the Development Office at or by calling 206.543.2964.