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Giving Away An IRA

Tis the season for giving and receiving, as well as for high-pressure television ads that force you to search frantically for the button on the remote control. But sometimes, paying attention to those special offers available for a limited time only, can work to your benefit (just ask the many satisfied owners of the Chia Pet). For example, there is a rapidly closing window that may allow clients

‘Tis the season for giving and receiving, as well as for high-pressure television ads that force you to search frantically for the “mute” button on the remote control. But sometimes, paying attention to those “special offers” available for a “limited time only,” can work to your benefit (just ask the many satisfied owners of the Chia Pet).

For example, there is a rapidly closing window that may allow clients of a certain age to use required minimum distributions (and more) from IRAs to support a favorite cause. The strategy can reduce the clients' income tax bills even more than if the donors were to just cut a check for the charity.

The Pitch

As you no doubt know, each year clients over the age of 70 1/2 are required by the IRS to withdraw at least a minimum amount from their IRAs, and then pay taxes on the withdrawals at ordinary income rates.

The many who don't need the money, and don't like paying taxes, usually aren't too happy about being told to take the “RMD” out. Luckily, these same people may also be the ones most interested in charitable endeavors.

Courtesy of the Pension Protection Act of 2006, through December 31, 2007, donors over the age of 70 1/2 can have up to $100,000 taken from their IRAs and sent to a qualified charity. As long as the check is made payable directly to the charity, and the gift doesn't fulfill a previously made pledge, the money will go from the IRA to the designated charity unimpeded by taxation from Uncle Sam.

“But Wait — There's More!”

Those familiar with the ways of the IRS will point out correctly that when your clients give money to charity, the donations are typically tax-deductible anyway. So why go through all the effort of sending IRA distributions directly to the charity?

First, that tax deduction is usually only available to filers who itemize. Many older clients either don't have enough other deductions to make itemizing an option, or only go through the process so that they can write off charitable contributions.

Unable to deduct the donation, the benevolent seniors might fall into an income bracket that could make Social Security payments taxable, or force them to forego deductions for which they otherwise would qualify.

“Call Now!”

It shouldn't be too hard to find clients in your book who might be interested in taking advantage of this provision. In fact, as you're reading this, the various IRA custodians who hold your clients' money are (hopefully) sending you the names and numbers of people who need to take RMDs before the end of the year.

Contact those who are about to receive one with this notification and the ensuing inquiry:

  1. “We'll be sending your required minimum distribution to you.”

  2. “Are you making any charitable contributions before the end of the year?”

If so, you can tell them that before they commit any cash to a qualified organization, they should consider authorizing you to send the RMD directly to the charity instead, and point out the tax savings that may follow.

If you've got a little more time on your hands, call all of your clients who were born before 1937 to ask if they're aware of the provision, if they have any charitable intentions, and if there are any IRAs held outside of your jurisdiction that may serve as a source of funds.

Answers of “no, yes and yes,” should help the clients realize something you already know: They might be better served if all of their IRAs were part of your AUM.

“Tell Your Friends”

But in this season of giving, why limit your largesse to just those individual investors you currently serve? After you've pored over your client list to find people who meet the criteria for charitable IRA distributions, your next set of calls should be to the offices of local charities.

These groups can be separated into two categories: those who haven't heard of the provision, and those who have, and are actively seeking RMDs from qualified donors. You can help the former by offering to assist the charity in educating their “friends” about the opportunities available. And the latter group may be in need of an advisor to assist interested IRA owners in facilitating the transaction.

The Disclaimer

Once you find an interested potential donor, your next call should be to the custodian of the IRA in question, as some won't issue checks to anyone but the IRA owner. As you also are probably aware, completing the transaction requires that your client sign a couple of pieces of paperwork. With the holidays approaching quickly, you should act now to make sure the forms and letters aren't lost in a blizzard of mail. In other words, the IRS isn't likely to agree to allow four to six weeks for shipping.

Writer's BIO: Kevin McKinley CFP is a Vice President-Private Wealth Management at Robert W. Baird & Co., and the author of the book Make Your Kid a Millionaire (Simon & Schuster). You can reach him at [email protected]


What financial activity accounts for 2.1 percent of the nation's GDP, is near and dear to the hearts of money giants like Bill Gates and Warren Buffett, and is projected to be worth $7 trillion in this country over the coming 45 years?

It's charitable giving — an area of financial planning that at best is met with apathy by most advisors, and at worst is viewed as a threat to their assets under management (and livelihoods).

But ignorance and contempt won't make your clients less interested in learning how to make their money work for a greater good. Instead, it could drive them toward competitors who already understand the key role advisors can play in helping clients donate the right amount of money, to the right organization, in the most efficient manner possible.

This column marks the first of a series that will focus on charitable giving, and how you can help clients make the most of their benevolence.

Specific topics of coverage will include how to help your clients find and analyze potential recipients, the benefits and drawbacks of the myriad methods by which money can be donated, and how to make sure one generation's generosity fosters family harmony, instead of conflict.

Plus, there will be discussions on how to develop relationships with charities and non-profits that can be beneficial to the organization, their clients, and mission, as well as the heart, soul, and pocketbook of the advisor.

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