If you are at least age 70½, like to make gifts to favorite charities, and don’t need your required minimum distribution for living expenses, IRS has a tax saving gift for you. The “IRA charitable rollover,” technically known as a Qualified Charitable Distribution or QCD, has become the gift of choice for age appropriate charitably inclined individuals, and especially for taxpayers who no longer itemize deductions now that the standard deduction has been expanded.
The Many Benefits of the IRA Charitable Rollover/QCD
Here is what you need to know to take advantage of this giving opportunity. The gift must go directly from your IRA administrator to the charity. If you have an IRA checkbook you can write a check to charity and that will qualify as a QCD. You can make gifts to various charities, but your gifts using the QCD cannot exceed $108,000 per year. If you are married and your spouse has an IRA, she or he can also make gifts not to exceed the $108,000 annual limitation. The gift will not be included in your taxable income, which may reduce your taxes on Social Security income and the cost of your Medicare premiums. Perhaps one of the most significant benefits is that your QCD gifts will count toward your required minimum distribution.
If you no longer itemize your deductions, the QCD is a tax-free gift with the same tax benefit as if you made a charitable gift from taxable income and then took a corresponding income tax charitable deduction. Unlike writing a check to a charity where your deduction is limited to a percentage of adjusted gross income (AGI) (60% of AGI for gifts of cash and 30% for gifts of appreciated assets), there is no such limitation with QCD gifts. Also, the rules permit you to pay a legally binding pledge to charity using a QCD gift.
Don’t Run Afoul of These Rules
There are, however, some caveats. You cannot take a tax deduction for a QCD gift, as the distribution from your IRA is not being included in your taxable income. You also cannot receive any benefits in exchange for your gift such as tickets to charity events. Any kind of benefit you receive that would reduce the charitable deduction for a non-QCD gift will disqualify the entire QCD gift for its beneficial tax treatment. Also, if you are making the QCD gift in December make sure your IRA administrator withdraws the funds from your IRA account before the end of the year to avoid being penalized 50% for any shortfall for your required minimum distribution. Procrastination could be costly.
Strategies with Other Tax Qualified Retirement Accounts
If you don’t have an IRA account but have other tax qualified accounts such as a 401(k) or 403(b), they can be rolled over into an IRA account. There are technical IRS rules in these situations, so you are strongly encouraged to consult your tax or financial advisor.
Initiating the IRA Charitable Rollover/QCD
You can initiate a QCD gift by sending a letter to your IRA administrator requesting they make a QCD from your IRA account, providing the name and address of the recipient charity and the amount of your gift. Many charities have example letters on their websites and IRA administrators likely have their own form that can be submitted. Send a copy of the request form to the charity so they are aware of the pending gift. Request that your IRA administrator include your name on the check so you can receive the IRS required substantiation letter from the charity receiving your gift.
The IRA charitable rollover is growing in popularity. Ask your charity development office for information and assistance. If you qualify and follow the rules, this is an opportunity to support St. Mark's while saving taxes. It may seem too good to be true, but this is one situation where it is true and should be considered as a strategy for your annual giving plan.