In the past, how did the tax law treat charitable gifts made from IRAs?
Prior to 2006, IRA holders faced a disincentive for giving retirement assets to charity during their lifetimes because all withdrawals from traditional IRAs were subject to income tax. Thanks to the renewed tax provision, retirees will be able to give far more support without being penalized, doing so during their lifetimes and seeing their gifts benefit their communities.
In the past, when a donor of any age withdrew IRA funds to make a charitable gift, he or she was liable to pay income tax on the withdrawal, offset to varying degrees by a charitable deduction for the gift.
As a consequence of this unfavorable tax treatment, very few individuals donated IRA funds to charity during their lifetimes.