Current law allows you to give up to $108,000 to qualified charities from your IRA. By doing this, you don’t recognize income as you would with a traditional required minimum distribution (RMD). You also don’t get an income tax deduction.
This technique is called a Qualified Charitable Distribution (QCD) and it can keep taxable income lower. That helps if you are bumping up against the thresholds where you pay more tax on Social Security benefits or higher premiums for Medicare. You don’t have to itemize to use the QCD and can just take the standard deduction.
To be able to make a qualified charitable distribution (QCD):
- You must be age 70 ½ or older. That may be before RMDs are required at age 73.
- You typically use traditional IRAs or inherited IRAs to make these gifts. Generally 401(k) or 403(b) accounts cannot be used. You can, however, roll over your 401(k) or 403(b) to a traditional IRA and then make the donation.
- Roth IRAs are generally better left to heirs as they have already been taxed and will not be taxed again.
- Only the taxable portion of the IRA is eligible for QCDs. No after-tax or non-deductible contributions can be used.
- Funds must go directly to the charity. Not to you and then the charity. You can get a check made out to the charity and present it to them though. Just don’t get a check made payable to you.
- You can’t give your QCD to a donor advised fund. Just straight to the charity.
- You can’t give your QCD to a private foundation or supporting organization. Most people aren’t going to know what their organizations are, so you need to find out.
- For example, at the retirement community I live at, Lake Forest Place, we also have a charitable organization--The Geneva Foundation—which is a supporting organization. So if I wanted to give from my IRA here I’d need my QCD to go to Presbyterian Homes-Lake Forest Place, not The Geneva Foundation. Both are 501(c) (3) organizations, but only The Geneva Foundation is a supporting organization. Confusing? You betcha.
- You can’t receive any benefits in return for the gift. So no silent auction baskets or special parking passes. Pay for those separately to avoid a problem.
Remember to tell your CPA that you’ve made a QCD. There is nothing on your 1099-R that signals that to your accountant.
You can set up check writing on your IRA or make charitable distributions by filling out a custodial form.
When you are thinking about how to make your charitable contributions each year, consider a qualified charitable distribution from your IRA as well as using a Donor Advised Fund or giving appreciated stock. All of these techniques may help save on taxes while doing some good in the world.
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