If you’re over 70½ years old and want to donate to a special charitable project, but your only liquid asset is your IRA, I’ve got good news for you.

On August 17, 2006, the Pension Protection Act of 2006 (PPA 2006) was enacted. This nearly 1,000-page legislation marked the most sweeping changes in the pension field in 30 years.

Let me give you two common examples containing problems faced by older people solved by PPA 2006…

Roger and Claire are retired. Roger spent his working career in the aerospace industry. He was more than well compensated and over the years he accumulated a very large 401(k) plan. When he retired, he rolled over his 401(k) to an IRA. Besides his home, the IRA is by far his biggest asset.

For years, Roger and Claire have supported the Humane Society. Your local chapter is building a whole new wing on their kennels. Roger and Claire would love to make a significant donation, between $50,000 and $100,000.

Bill and Diane worked their entire career. Mary taught sixth grade for 40 years. Bill was a career military officer. After his retirement, he spent another 20 years working in the private sector. Like Roger, Bill has a large IRA account.

When Bill turned 70½, he was required to begin taking the required minimum distributions each year from his IRA. But Bill and Diane don’t need the income; your other sources of retirement income are more than adequate. However, Bill must take these RMDs and pay taxes on them as income.

Bill and Diane have been active in their church their entire married life. Your church just bought a new organ. The church did not pay cash for the organ; most of it was financed. Bill and Diane would like to pay for the organ.

Both Roger and Claire and Bill and Diane are caring people. But, before the approval of the 2006 PPA, his generosity could have been thwarted by several things…

1. In both cases, your primary liquid asset was an IRA. Neither couple had other assets with which to make a gift.

2. If large sums were withdrawn from their IRAs, they would be subject to ordinary income tax.

3. If donating to charity, rules limiting the amount that could be deducted as a charitable contribution must be followed. This means that they may still have to pay taxes on a portion of their IRA withdrawals.

But thanks to the provisions of the 2006 PPA, Roger and Claire can make their donation to the Humane Society and Bill and Diane can pay for their church’s new organ using money from their IRAs and pay no tax on withdrawals. But they have to follow the rules…

1. First, you must be at least 70 1/2.

2. You can donate up to $100,000.

3. This only applies to 2006 and 2007.

4. You cannot withdraw the money from your IRA and then donate it to your charitable cause. The transfer must be made directly from the IRA custodian to the charity.

5. These gifts, called charitable IRA transfers, count toward your required minimum distribution for the year.

6. IRA charitable rollovers are not allowed for gifts to funds recommended by donors and supporting organizations. However, there are some exceptions that apply to funds held by community foundations: they qualify for scholarships, fields of interest, and designated funds. So the first step is to contact your intended cause to see how they rank and whether or not an IRA charitable rollover gift is allowed by law.

7. The gift must be pure gift. In other words, there cannot be any string of personal benefits attached like tickets to an event.

8. You do not have to report IRA charitable rollover as income.

9. However, you do not get a charitable deduction for your donation. Sorry, you can’t have your cake and eat it too.

This new law is a real winner. In these two examples, the SPCA may build new kennels and a church pays for an organ they thought they would have to finance. The donors were able to make it happen even though the only real asset they had was an IRA.

I do not provide tax advice. It is imperative that you check with your tax advisor and the charity to ensure that you are qualified and that the donation is made appropriately.