The Katrina Emergency Tax Relief Act (KETRA) provides a brief window of opportunity for donors to make additional gifts (or pay off an existing pledge) to their favorite qualified charities by withdrawing funds from their IRA or other qualified retirement plan between August 28, 2005 and December 31, 2005.
Whereas cash gifts are normally only deductible up to 50% of adjusted gross income, cash gifts from qualified IRA and other qualified retirement plans made between August 28, 2005 and December 31, 2005 may be deductible up to 100% of adjusted gross income. The act effectively permits unlimited IRA withdrawals or withdrawals from other qualified retirement plans to fund gifts to qualified charities for the balance of 2005.
To qualify for the unlimited deduction for withdrawals from qualified IRA accounts or plans:
The donor must be at least 59-1/2. The gift must be cash; gifts of stock or other non-cash assets do not qualify.
The withdrawal and gift must be completed by December 31, 2005 (allow plenty of time to complete the process).
EXAMPLE: Mary has income this year of $40,000. She has an IRA of $500,000 and wants to help Luther Seminary by making an extra gift before year end. Mary withdraws $50,000 from her IRA (her income for the year is now $90,000). She gives $50,000 to the seminary by December 31, 2005 and is able to deduct the full $50,000 as an additional charitable contribution for 2005. Her income for tax purposes is again reduced to the original $40,000.
This information is for illustrative and educational purposes only and should not be considered tax or legal advice. Please consult your attorney and tax preparer before proceeding.