WAYS TO GIVE
Qualified Charitable Distribution/IRA Charitable Rollover
The Qualified Charitable Distribution (QCD) is a very strategic and tax efficient way to donate money to charities and save tax dollars. This specific and effective tool is only available for people ages 70 ½ and older who own qualified retirement savings accounts, like IRAs. These assets have the potential of heavy taxation, both from an income tax standpoint during your lifetime, as well as an inheritance tax standpoint when the money is passed on to beneficiaries.
In the past, some people were able to deduct their charitable contributions through itemized deductions on their tax return. However, with the new tax code in place, most people are not able to itemize deductions due to the substantial increase in the standard deduction. Now, one of the very few ways of getting a tax benefit for charitable donations is through the use of the QCD/IRA Charitable Rollover.
The QCD allows owners of taxable IRAs to make a charitable gift directly from that IRA. It allows the owner to satisfy their annual required minimum distribution (RMD) (up to $100,000 per year) without paying taxes on the distribution.
How it Works
Consult with your financial advisor to see if a QCD/IRA Charitable Rollover is right for you.
If it is, instruct your IRA custodian to make a distribution (up to $100,000 per year) to the Foundation.
The distribution counts toward your RMD.
The distribution is excluded from your income for federal tax purposes – no tax is due.
If you are giving money to charity, the QCD will save you tax dollars. Here is why:
Take Your RMD and Donate It To Charity:
The RMD distribution is taxable income.
Your gift to charity is only tax deductible if your itemized deductions are above the standard deduction by more than the amount of your gift to charity.
Utilizing the Qualified Charitable Distribution:
Your IRA custodian sends your distribution directly to your desired charities.
The distribution is not counted as taxable income.
The distribution counts toward satisfying part or all of your RMD.
Making a Difference
By utilizing the QCD through the Community Foundation, you can use your gift to meet ever-changing community needs – including future needs that often cannot be anticipated at the time your gift is made. Your gift can target the causes and programs you care about most.
The Community Foundation can help you establish a fund that will make an impact in the area of needs that are important to you. The Foundation offers a variety of funds that are eligible to receive your gift through a QCD/IRA Charitable Rollover.
Additional QCD/IRA Rollover Awareness
The QCD offers many benefits but does have some limitations.
If you itemize, you do not get a deduction in addition to the QCD.
You cannot direct the rollover to fund a gift annuity or charitable remainder trust.
You cannot direct the rollover to a Donor Advised Fund or a Sec. 509(a)(3) supporting organization.
This gift opportunity only works for IRAs. If you own another type of qualified retirement plan, you must first make a tax-free rollover of funds into an IRA.
Then you can make the gift from the IRA account.
Case Examples of Qualified Charitable Distributions (QCDs)
EXAMPLE #1
The Donors: A couple in their mid-70s is living comfortably off of their pension, Social Security and savings. Their IRA required minimum distribution (RMD) of around $10,000 per year was increasing their income, but they were donating a total of $10,000 a year to their church. In the past, their itemized deductions totaled $20,000 so they were able to deduct their charitable contributions from their income, which essentially erased the tax owed on their RMD. However, with the new tax code in place, they now will not be able to itemize anymore, thus losing the ability of being able to deduct their charitable contributions.
Their Gift: The donors were able to resolve this new problem by utilizing the QCD. They created a named designated fund for their church through the Community Foundation and will fund it with their RMD each year. Once the fund is fully funded, grants will be awarded to the church designated by the donor. The QCD satisfies their RMD requirement for the year and they do not have to claim that RMD as income. This saves them tax dollars, thus continuing to give them financial incentive for their gift as before.
EXAMPLE #2
The Donor: Susan is a faithful supporter of her favorite charity. She has a $200,000 IRA and her RMD this year is 5 percent or $10,000. Because she has other income and does not itemize her deductions, Susan directs her IRA custodian to make a qualified charitable distribution to her favorite charity in the amount of $10,000. Because the full RMD is transferred to a qualified charity, Susan will owe no taxes on her RMD and will not be required to include it in her income for tax purposes. Because Susan takes the standard deduction, the IRA rollover reduces her taxable income by $10,000. Based on her income tax rate of 32 percent, the IRA charitable rollover will save Susan $3,200 of income tax. After seeing the benefits of this tax-saving and charitable strategy, Susan plans to continue making IRA rollover gifts for the rest of her life.