Fund-Raising Experts Offer Tips on Seeking IRA Gifts Under New Law

Charities should be careful in promoting gifts under a new federal law allowing people to make

tax-free donations from their individual retirement accounts, fund-raising experts say. They offer the following advice about marketing such contributions:

Avoid mass promotions. Because the law is restricted to people age 70½ or older who can give no more than $100,000 annually from their IRA’s in 2006 and 2007 — and only certain types of charities are able to receive those gifts — experts caution nonprofit officials to avoid sending expensive mass mailings and other promotions to all of their donors.

Charities should, however, consider a special mailing or other communication to wealthy people who are loyal donors and who are at an age when they can take advantage of the new law, says Robert F. Sharpe, a Memphis planned-giving consultant.

“But if you fund raise from masses of people and you don’t know their ages,” he says, “piggyback the promotion onto something else, like an annual appeal or a box ad in your newsletter.”

At United Way of America, says Ed John, vice president of planned giving, “we do not see this as a mass-marketing opportunity.”

He says he has advised United Way fund raisers to make sure they reach the right donors and to help those donors understand restrictions in the new law. For example, donors can direct up to $100,000 annually to charities and avoid the taxes they would normally pay for a personal withdrawal, but they cannot claim a tax deduction for making the gift.

Communicate with potential donors regularly. Fund raisers say it is important to keep mentioning the IRA benefit this year and next year to any donor who might be able to take advantage of it.

This is a major decision for many donors, plus older people are often reluctant to make quick decisions about changes in their financial strategy, says Larry Stelter of Stelter Communications, a Des Moines company that publishes planned-giving materials. “You need to target the audience and keep it in front of them. You have to be there when they are ready to make the decision.”

Don’t seek gifts only from the wealthiest Americans. While many organizations see the new law as an opportunity to get capital-campaign gifts and other large donations, groups that rely on smaller gifts may benefit also, says Mr. John of United Way of America.

“This is an opportunity to use IRA rollovers to perpetuate annual gifts,” he says.

United Ways, he notes, have in recent years recruited many donors who make gifts of $10,000 and above each year. He says United Ways will encourage those donors to transfer the maximum $200,000 from their IRA, over this year and next year, to create an endowment that will be invested to generate their $10,000 gift every year from the interest alone. Any excess earnings will be reinvested, with the goal of producing at least $10,000 a year for the rest of a donor’s life. When the donor dies, the money left will go to United Way.

Don’t rely on e-mail or Web-site promotions. Most planned-giving experts recommend that charities craft postcards, newsletters, and other print communications about the new opportunity to make retirement-fund gifts because many people in their 70s are still not comfortable getting information from Web sites and e-mail. A 2004 study of IRA assets and withdrawals conducted by the Investment Company Institute, in Washington, for example, found that only 2 percent of those who made a withdrawal consulted a Web site before doing so.

Don’t ignore younger donors. Stanford University is planning a special mailing about retirement-fund gifts to people in their mid to late 60s, because fund raisers believe that those people may pass along the information to friends and relatives who are 70½ and would be interested in making a donation under the new law.

Jeff Comfort, a Georgetown University fund raiser, says that the new law creates an opportunity to talk to younger donors about making other types of gifts with their retirement funds.

For example, donors can currently withdraw retirement fund money at age 59½ and give it to charity; with careful planning, the tax deduction they get for their charitable gift often offsets the income tax they owe on the withdrawal, Mr. Comfort notes. And, under longstanding laws, donors can leave IRA funds to charities in their wills; when they die, their estates do not owe taxes on that money.

“The benefit of this law is just having the spotlight on IRA funds, people are reading about it and want information, and that opens the door to talk to people,” says Mr. Comfort. “I see this as a silver lining to what would otherwise be pretty limited legislation.”