Will RMD change hurt charities?

Although I'm nowhere near 70½ years old, the required minimum distribution issue has been on my mind of late.

Maybe it's because I do have relatives who are older and worrying about their investments. They already had that "never enough money" mindset, and the recent stock market downturn has freaked them out pretty good.

So I'm glad for them that, in 2009 at least, they won't have to pull money out of their traditional IRAs or tax-deferred company pension accounts. The 2008 RMD is another matter, as blogged about here.

But I'm also a bit concerned about how the RMD change might affect charities.

Unintended tax consequences? It seems that we have a bit of dueling tax laws right now.

Back in October, one of the many provisions added to the financial services bailout bill, officially known as the Emergency Economic Stabilization Act of 2008, was the extension of a specific charitable tax break option to older philanthropists. Through 2009, anyone who is 70½ or older now can have money transferred directly from an IRA to a qualified charity.

This option, first approved in 2006, was a particularly welcome change for folks who had to take RMDs but didn't really need the money. I know that's probably not a lot of folks, especially in this economic climate. But still, for those folks it meant they could satisfy their tax obligations by sending the IRS-mandated withdrawal amount (up to $100,000) to a favorite charity and, since they didn't take possession of the cash, they didn't owe any tax on it.

Of course, they didn't get a charitable deduction either, but in these specific instances, it was a good move.

RMDs suspended: Then came last week's Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327), with its one-year RMD suspension. The measure is still awaiting Dubya's expected signature so it can become law.

With RMDs no longer an issue in 2009, will charities who got such transfers suffer next year? Probably.

Of course, again considering the general financial outlook nowadays, the nonprofits probably weren't going to get as much money anyway. As I blogged about back in September, the dissolution of many traditional corporate givers has already put charities in a tighter than usual sport. And along comes the Bernard Madoff scam, which also caught nonprofits off guard.

Still, it seems to me a bit of a kick-them-while-they're-down situation, even if it wasn't intended that way.

Still available, just not as appealing: I hope I'm just being a bit too pessimistic. Dick O’Donnell, senior tax analyst from the Tax & Accounting business of Thomson Reuters, says that the new RMD law "does and doesn't" necessarily affect the IRA-to-charity giving option.

"The provision for the qualified charitable distribution applies to 'any otherwise taxable distribution made directly by IRA trustee to the charitable organization on or after the date the IRA owner turns 70½,'" says O'Donnell. "There's not a requirement that it has to be the required minimum distribution for that year, but it worked well for folks who had to take the distribution even though they didn't need  to take one."

So O'Donnell gives me hope that some eligible older donors will still be generous. I know times are tough for most everyone, but when folks can give to others who need a little more help than they, with or without the encouragement of the tax code, it restores my confidence in my species.