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Pension act expires with new year

Marcela Berrios | Thursday, November 8, 2007

Notre Dame may have to find a new way to encourage senior alumni to donate a part of their retirement savings to the University starting next year, because the piece of legislation that currently makes these contributions tax-free will expire at the end of 2007.

A provision of the 2006 Pension Protection Act allows people 70.5 years or older to direct up to $100,000 of their Individual Retirement Account (IRA) to qualifying charities and tax-exempt organizations, like Notre Dame – and with a tax benefit.

Since President Bush signed the Act into effect in August 2006, Notre Dame has received more than $2.5 million in IRA contributions, said John Butkovich, assistant director of planned giving at the University’s development office.

“These are dollars we might’ve not received otherwise,” Butkovich said.

But the provision will expire on Dec. 31 as different groups in Congress have expressed concern about the tax revenue lost through the Act. There are, however, groups in Washington that are trying to extend the IRA provision, Butkovich said.

The Act’s tax benefits, he said, acted as an incentive that encouraged older alumni to use their IRA funds to make contributions to Notre Dame during 2006 and 2007 – and usually at the $100,000 level.

“We’ve had a significant amount of gifts at the $100,000 level, which is the maximum contribution the Act allows,” Butkovich said.

He said most benefactors taking advantage of the Act’s IRA provision made gifts to the University before 2006, when the Act went into effect. But he said he thinks many of them were discouraged from making further contributions because the IRS tax code puts a ceiling on the amount of tax reductions a person can receive each year for charitable distributions.

“These alumni are happy with the provision, because it allows them to make donations to the University without tax implications, but at the same time this gift doesn’t count against the benefactor’s allowable tax deductions that year,” he said.

Withdrawals from IRAs are normally reported as taxable income. But with the Pension Protection Act, individuals can directly transfer those funds – free of taxes – to a charity without having to itemize the gift to receive a tax reduction.

Butkovich said as soon as the legislation was passed, his office sent alumni whose graduation years put them in the 70-year-old range information about the Pension Protection Act.

And the University made full use of it during the two years the provision was in effect.