Although April seems a long while away, it's time to make important financial decisions affecting your taxes, as claiming certain exemptions, deductions and credits requires action before the end of the year. And this year, there are new factors to consider"”due to recent changes in income tax law"”that may prompt some taxpayers to rethink retirement savings and charitable giving.

Chief among those changes is the newly-enacted Pension Protection Act of 2006, which is the result of a several-year-long effort to shore up unclear benefit plans and provide greater personal savings options for American employees, according to a White House statement released on the day of the signing.

"The most significant change that was made in this law is that anyone over the age of 70.5 can make a donation directly from their [Individual Retirement Account (IRA)] to a public charity, tax free," says Mark Albertz, CPA, of Sharonville-based Albertz and Associates. "This will be appealing to a person who has a well-funded IRA and has plenty of money to live on."

For example, suppose John Doe is 71 years old, and therefore required to take required minimum distributions (RMDs) out of his IRA. Further suppose that Doe's RMD for 2006 is $100,000.

According to Albertz, Doe would probably pay at least 25 percent in federal taxes on that distribution and another 6 percent in state taxes as an Ohio resident. The grand total of taxes that Doe would have to pay for just that one RMD comes to a staggering estimate of $31,000. But, with the new law in place, Doe could donate the $100,000 to his favorite charity, and by doing so, the $100,000 does not become taxable to him but his RMD requirement is still met.

In addition, Doe saves approximately $31,000 in taxes and his charity gets the full donation of $100,000.

A Limited-Time Offer
The Pension Protection Act of 2006 was signed into law on Aug. 17, 2006, and therefore, the above-mentioned tax benefits only pertain to donations made after that date. And, as written in the legislative language of the law, it's effective only for donations made in 2006 and 2007, thus creating a small window of opportunity for taxpayers to opt in on the new benefit.

"I think the main advantage and the main disadvantage is that it's in effect for two years," Albertz says. "By that I mean it will force people to take advantage of the new law now because they only have two opportunities to do it, as the law stands right now."

Albertz says the main disadvantage is that the provision is scheduled to disappear after its two-year life span. "This will take away the incentive for people to make these kinds of donations. The tax savings will be gone and the charitable organizations will suffer as well from a reduction in giving."

But if results of the Pension Protection Act are what Congress intended, lawmakers may provide taxpayers a more permanent option for similar types of giving. Michael Bain, tax manager at accounting firm BKD, LLP, says the ability to donate directly to a charity from one's IRA was proposed a few years ago, but was not actually passed into law until 2006. "Therefore," he adds, "I would expect that this feature will likely be extended."

Local Effects
Bain says planned giving has been on the upswing since the early- to mid-1990s due to the increase in accumulated wealth. But the Pension Protection Act has created quite a stir in this arena since its genesis a short while ago.

On the national front, according to a preliminary estimate performed by the United Way of America, the IRA rollover provision could generate an additional $400 million in new donations for charitable organizations.

Albertz estimates that 60 percent of Cincinnatians have an IRA. Therefore the new tax provision could create quite a boon for local charities. In fact, it already is, says Barbara Perez, president and CEO of the Arthritis Foundation's Ohio River Valley Chapter. Perez says her organization has already seen an increase since the law was enacted a few months ago.

Julie Wischer, development director for the Cincinnati Habitat for Humanity, says the changes in tax code"”and people being more aware of planned giving options"”are prompting non-profit organizations to adapt, develop plans and enhance programs that promote planned giving.

Brenita L. Brooks, executive director of the Kidney Foundation of Greater Cincinnati, says the foundation recently updated its Web site to be more educational and donor-friendly with new online donation options as well as patient, volunteer and sponsorship information. The foundation will also be utilizing direct mail, phone, print, television and radio mediums to deliver its message and encourage planned giving as a donor option.

Don't be confused about the prohibition on IRA giving to donor-advised funds. The Greater Cincinnati Foundation, for example, can accommodate IRA giving. "We can help donors execute the transfers and choose from several charitable fund options for their gifts," says Amy L. Cheney, CPA, GCF's vice president for giving strategies. "Donor advised funds do not qualify for tax-free IRA transfers, but GCF offers many other qualified giving options to take advantage of the new law. For example, if you give annually to support a particular charity or church, a $100,000 rollover from your IRA could create an endowment to support that organization forever."

The United Way of Greater Cincinnati is also implementing an advertising campaign, via direct mail and e-mail, to draw donors into their planned giving programs. But according to Jeffrey Stec, United Way's director of planned giving, despite the ad campaigns and tax incentives out there, people are going to care more about the steak rather than the sizzle.

"The only incentive is to make people feel like their dollars make a difference"”it's not about tax incentives," says Stec. "Most people don't give based on incentives. They give based on mission."

Stec says the goal is to identify how you want to "live on" through the work of an endowment and an organization's mission. And, he adds, "Any good attorney will then 'reduce the cost of the gift' through the right means for you."

On a Mission
Planned gifts, according to Bain, can be selected and tweaked to precisely fit the values of the donor and family. This is an "opportunity to live a more fulfilling and rewarding life, financially and non-financially, by aligning resources with individual and family values, estate and income tax goals."

To ensure that an organization's mission is congruent with the legacy you'd like to uphold, use the Internet to research your selection. Go to the organization's Web site, look for their mission, who they help, how they help, if the funds stay locally or go to a national headquarters and any other factors that may be important to you.

For example, the local Kidney Foundation's mission, "To provide patient services, information and research funding in the Tristate to prevent and alleviate the life-threatening effects of renal disease" is prominently displayed on the home page of its site,

The site also informs you that the foundation is an independent organization, separate from the National Kidney Foundation, and it keeps 100 percent of all donations in the Greater Cincinnati area. There is also information about the local renal research professionals serving on their board, direct services provided to local patients and education programs available to the community. Most organizations have an "About Us" section on their sites where important details  such as these are provided.

Once you've done a preliminary online search, Whitney '™Neal, secretary of the Greater Cincinnati Planned Giving Council"”a professional association for people whose work includes developing, marketing and administering charitable planned gifts"”recommends checking with the Better Business Bureau, talking with estate attorneys, reading the organizations' published annual reports and review the non-profit organizations' 990 forms at, a Web site providing comprehensive data on more than 1.5 million nonprofit organizations, connecting them with donors, foundations, businesses and governing agencies nationwide.

If the charitable group of choice made the cut so far, "it's time to meet with someone from the organization and ask the hard questions," says '™Neal. Some of those "hard" questions include:

"¢ How much of your budget is spent on administrative costs?
"¢ How long has the organization been around?
"¢ How many adults, children, animals, lives, etc. does the organization impact each year?
"¢ Is the organization financially stable?

"You do not want to give to an organization that has the chance of closing their doors every year unless they raise X amount of dollars," says '™Neal.

Gift Options
Donating an IRA directly to charity was recently singled out with a tax perk in legislation, but it's just one of many planned giving options available to interested parties. Other examples of planned gifts, according to Stec, include a stock gift, bequest or gift annuity. In fact, Stec defines a planned gift as any gift "that requires more planning than finding your checkbook, but often entailing as much work as creating an entire estate plan."

One relatively easy way to donate your remaining assets is to arrange for your favorite charities to be named in your will. But Stec cautions donors interested in this option, saying, ""¦the state's laws for how to distribute assets in lieu of a will might be very different than your intention."

Albertz suggests a charitable remainder trust, touting it as "one of the most advantageous planned giving techniques that can be used by a person who has property that has appreciated in value and does not want to pay taxes on the gain if they were to sell it."

To some, it's important to have an organization's mission be in accord with not only their personal values, but also the values of their family members.

Bain says a private foundation can be helpful in this case, as it can be set up during one's lifetime, and annual contributions of appreciated stock can be contributed to provide financial support to local community foundations. "The donor can involve family members as trustees to instill family values for generations to come."

If there is a ghost of fear about whether there will be enough money set aside to provide you and your family a comfortable life in the future, there is a planned giving option for that as well.

"Donors who are worried about not having enough money to live on while also making a contribution to charity can set up a charitable gift annuity or charitable remainder trust, whereby they can receive an 'income' each month, quarter or year until death, while still giving to the non-profit charity of their choice," says '™Neal. "They can have their cake and eat it too."

Planning the Planned Gift
Regardless of the planned gift option, the first step is to have a clear vision, according to Albertz, and the second step is investing in the help of trained professionals who understand that vision.

A financial team"”consisting of accountant, lawyer and/or financial estate planning advisor"”should determine what the client's goals and objectives are before they recommend any type of strategy, no matter what the benefits might be, says Albertz.

"The advisors [need to] know what the client's goals and objectives are so they can make the right recommendations," he explains.

"Take the advisor to the end, so they know what you want to accomplish," continues Albertz. "If the advisor is good at what they do, this will be one of the first questions they ask the client."

As far as a timeframe goes, Stec says the sooner the better, "because you can be hit by a bus any time." And if you wait, you run the risk of not having your wishes carried out in the exact way you intended.

Albertz says it's important for the professionals on a financial team to keep informed about changes in the tax laws to properly advise clients on how they can use the tax laws to minimize their client's tax burden both now and in the future.

And as a whole, Albertz says, financial professionals and clients alike need to get more involved with politics.
"I think people should write their Congress representative with feedback on the Pension Protection Act of 2006," he says, "and encourage them to pass similar legislation in the future."