The Internal Revenue Service is providing information on some of the retirement plan provisions of the fiscal cliff deal that was signed into law earlier this month.

The American Taxpayer Relief Act of 2012, or ATRA, extended the ability to do tax-free Individual Retirement Account rollovers to charity. The new law also expanded the ability to do in-plan Roth IRA rollovers, permitting more funds to be rolled into designated Roth accounts.

The extension of tax-free IRA rollovers to charity allows IRA owners, age 70½ or older, to transfer tax-free up to $100,000 for both 2012 (by Feb. 1, 2013) and 2013 to eligible charities. The IRS explained that ATRA extended the qualified charitable distribution, or QCD, provisions for 2012 and 2013. Several special transition rules were included in ATRA to enable taxpayers to have a donation made before Feb. 1, 2013, treated as a 2012 QCD.

A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. An IRA owner can exclude from gross income up to $100,000 of a QCD made for a year, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year. Also, the amount of a QCD excluded from gross income is not taken into account in determining any deduction for charitable contributions.

An IRA owner can treat a contribution made to a qualified charity in January 2013 as a 2012 QCD in either of the following circumstances, according to the IRS:

  • The contribution is a cash contribution to the charity of all or a portion of an IRA distribution made to the IRA owner in December 2012, provided that the contribution would have been a 2012 QCD if it had been paid directly from the IRA to the charity in 2012.
  • The contribution is paid directly from the IRA to the charity, provided that the contribution would have been a 2012 QCD if it had been paid in 2012.

The IRS cautioned that IRA owners should keep records to substantiate the timing of contributions and distributions regarding any 2012 QCD made in January 2013.
A QCD made in January 2013 that is treated as a 2012 QCD will satisfy the IRA owner’s unmade 2012 RMD if the amount of the QCD equals or exceeds the 2012 RMD. However, no part of such a QCD can be used to satisfy the 2013 RMD, even if the 2012 RMD had already been made. In determining the RMD for 2013, the 2012 QCD must be subtracted from any Dec. 31, 2012, IRA account balances.

Roth IRA Rollovers
For the past few years, plans with designated Roth accounts could allow an individual to roll over an amount from a non-Roth account into the individual’s designated Roth account in the same plan, but only amounts the individual could have had distributed from the plan, usually because the individual had attained age 59½ or had severed from employment, according to the IRS.

Beginning in 2013, a 401(k) plan can permit this type of rollover for an amount that is not eligible for distribution at the time of the rollover, such as an amount in an individual’s regular (pre-tax) elective deferral account when the individual is not eligible for a distribution from that account.

A similar expansion applies to 403(b) plans and governmental 457(b) plans. The amendment to the in-plan Roth rollover rules was made by ATRA. The IRS said it anticipates issuing guidance later this year about the expanded in-plan Roth rollovers.