Give Directly From Your IRA to Your Favorite Charity
Background:
In the year that a taxpayer reaches age 70-1/2, the IRS requires minimum distributions (RMD) to begin. If you do not need all of the RMD for living expenses, there is a provision which allows distributions to be made directly to a qualified charity thereby excluding it from taxable income.
With the increase in the standard deduction, it is generally more tax advantageous to direct some or all of your RMD to a qualified charity rather than report the RMD as income and then claim it as an offsetting itemized charitable deduction (charitable contribution). The technical term to describe this maneuver is Qualified Charitable Distributions (QCD).
Specific Requirements for making a QCD from an IRA:
- The donor must be over age 70-1/2 on the date of distribution.
- The maximum amount is limited to $100,000 per year. This applies to each taxpayer. A married couple each can gift up to $100,000 as long as it comes from their respective IRA.
- The QCD can only come from an IRA (including an inherited and rollover IRA).
- The QCD must go to a public charity; it cannot go to a private foundation, a charitable supporting organization, or a donor-advised fund.
- The donor cannot receive any benefit from the charity, such as attendance at a gala.
- The check must be made payable directly to the charity.
We would encourage you to consider satisfying your RMD by completing a QCD from your IRA. Many of our eligible clients are seeing the benefits of using IRA funds to satisfy their gifting desires and at the same time reducing their adjusted gross income to avoid, among other things, the 3.8% surtax on net investment income or to reduce Medicare B premiums.
Another benefit, from a legacy standpoint, is to use your IRA to satisfy any or all gifting to your favorite qualified charities and leaving brokerage account assets to your heirs with a stepped-up cost basis (vs. IRA assets subject to income tax).
Be aware that Charles Schwab’s process is to deliver the check (made payable to the charity) to the donor who can then deliver it to the charity. It is also possible to make distributions from your IRA by use of an IRA checkbook. If you are interested in this distribution tool, please contact Steve Carlson.
As with all tax matters, we recommend consulting with a tax advisor about your particular circumstances.
