Philanthropic fund-raisers target over-funded IRAs: Federal law change allows tax-free charitable gifts from senior citizens’ accounts in 2006 and 2007 only

About 1,300 senior citizens recently received correspondence from the Indiana University School of Medicine. The letters detailed changes in federal law allowing them to make tax-free charitable gifts from their individual retirement accounts in 2006 and 2007 only.

Thanks to IU’s October mail campaign to alumni, former faculty and staff, the School of Medicine already has attracted seven six-figure contributions. And it’s received inquiries from many more potential donors. Some want to establish scholarships for students. Others want to underwrite cutting-edge research to fight deadly diseases.

“We are seeing good response from this, getting a lot of questions,” said Joshua B. Lee, the school’s director of planned giving. “A lot of folks are interested.”

In August, President Bush signed the Pension Protection Act of 2006. The legislation had a major concession to charities tucked among its more than 600 pages. During this year and next, individuals over age 70-1/2 can make annual philanthropic donations up to $100,000 directly from their IRAs.

Once they reach that age, seniors are required to withdraw some of the IRA money they’ve squirreled away-whether they want to or not. Before the law changed, they inevitably lost some to taxes, even if they earmarked all of it for charity.

“A lot of [seniors] are saying, ‘I don’t need the money; I don’t want to take it out and pay taxes on it,'” said Kenneth Klabunde, who manages Indianapolisbased City Securities Corp.’s Wealth Advisors division. “For people in that boat, they now have the ability to make a distribution up to $200,000.”

IU School of Medicine isn’t the only institution attempting to capitalize on the IRA rules change. Schools, charities and religious groups are all approaching wealthy seniors to solicit gifts. Locally, the United Way of Central Indiana highlighted the opportunity in its newsletter, on its Web site, and through letters to 10,000 elderly people.

“We’ve tried our best to be on top of it,” said Jan Bates, United Way of Central Indiana’s director of planned giving.

Anne Scheele, director of institutional advancement for the Indianapolis-based Orchard School, is preparing 1,000 letters for alumni, parents and friends of the private elementary school. About 6 percent of Orchard’s annual budget comes from donations.

“This is really a great benefit for donors out there who don’t really need the income from their IRAs,” Scheele said.

There’s the rub, money managers caution. Not every senior is wealthy enough to take advantage of the IRA rules change. Some need the money themselves.

“[People] put their life’s work into their IRA accounts,” said Kristin Fruehwald, a Barnes & Thornburg LLP partner who chairs the law firm’s estate planning practice group. “Everybody’s situation is different. The primary question is, ‘Does the senior have money to spare?'”

John Chivington, a certified public accountant with the Indianapolis-based firm Isenberg & Chivington PC, warned that seniors probably should consider making donations only if they already had such plans in mind.

“Anymore, it’s rare that you do things solely for tax benefit. If you have a charitable intent, this is probably a tax-efficient way to accomplish it,” Chivington said. “But talk to your tax adviser before you do it.”

The Central Indiana Community Foundation is highlighting the giving opportunity in its fourth-quarter “Give thanks, give back” campaign and is targeting 7,000 senior prospects through a mail campaign.

“This is a great opportunity to be more generous than you thought you could be, but it’s a short window of time, so you need to make the decision quickly,” said Rob MacPherson, CICF’s vice president for development.

“If people think this is a good idea, let your legislators know so we can have it go beyond 2007.”

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