Hometown Hall

Although the main purpose of last week´s unprecedented $700 billion package was to shore up the foundering U.S. economy, Congress also included in the package a small nugget that could benefit Brenau University and other not-for-profit institutions in lean financial times.

The Emergency Economic Stabilization Act of 2008, signed into law by President Bush on Oct. 3, contained some last-minute additions of tax credits for individuals and businesses that proponents say will stimulate the economy and extend the so-called Wall Street bail-out closer to Main Street. One of the breaks permits tax-free distributions from individual retirement plans to charitable organizations, including colleges and universities, through the end of 2009.

Under current tax law, individuals with Individual Retirement Accounts are required to start taking distributions from those accounts - and pay taxes on the amounts they withdraw - starting at age 70½. For the 2006-07 tax years, amounts they directed plan administrators to send straight to charities counted toward the required withdrawal minimum with no tax liability on that amount, but that provision expired Jan. 1.

"Congress really did a disservice to older Americans when it failed to extend that particular provision of the tax code," said James M. Barco, vice president for Institutional Advancement at Brenau. "And it inadvertently put institutions like Brenau who serve the public good in a bind because it threatened a very creative way for people to donate to causes they believe in."

That changed last week, however, when Congress included the provision in the economic recovery legislation it sent to President Bush. Now eligible donors can direct IRA funds to eligible charities up to $100,000 per year without incurring any tax liability or penalties for the withdrawal. The extension is good for both 2008 and 2009 tax years.

Although many of the investments have declined with the economic melt-down, Barco said mandatory distribution provisions still exist in laws governing IRAs, which puts some recipients in significant tax liability territory with IRA distributions are coupled with other retirement income, including Social Security benefits. Additionally, some older Americans have built up substantial reserves in IRAs but really don´t need the money for retirement and making a straight-to-charity contribution makes good sense for them.

According to the Council for the Advancement and Support of Education, the 581 four-year private and public colleges and universities surveyed at the end of 2007 reported about $185 million in IRA gifts. The organization also says that 215 institutions representing a broad cross section of higher education and independent schools reported $44.7 million in IRA gifts from the time the provisions was first enacted in August 2006 until the end of that year. CASE added, however, that the survey samples represent data from less than eight percent of the four-year institutions in the United States and an even smaller percentage of community colleges and independent schools.

"That is a compelling argument that the charitable IRA rollover provision significantly enhances private support for higher education and encourages prospective donors to be more creative in their philanthropy," said Barco. "I think Congress should not only make this break permanent but should also expand it to allow for life-income gifts from younger donors."

There are some restrictions on how the gifts have to be made - for example, plan administrators have to distribute the money straight to the charity and the provision applies only to tax-deferred IRAs. Barco suggested individuals interested in such a contribution contact their financial advisers or members of Barco´s institutional advancement team (770)534-6161 or jbarco@brenau.edu) for information.