Four Most Popular Questions about Charitable Gifts from IRAs
April 02, 2019
Charitable contributions to TMF have enormous potential to transform lives, churches, and communities. While the impact of donor support can be observed most prominently in Texas and New Mexico, our reach is increasingly global. As donors consider an ever-expanding breadth of charitable opportunities they must remain mindful of recent changes in the tax laws. While rules related to Qualified Charitable Distributions (QCDs) from an IRA are now permanent, it is important to revisit old assumptions or learn anew about how best to maximize a charitable gift from an Individual Retirement Account (IRA). Find out what you need to know about making charitable distributions from qualified Individual Retirement Accounts.
IRAs allow investors to save money for their retirement over the course of many years.
In general, tax paid on income is deferred and is collected when the investor begins receiving distributions of income from the account. After an individual reaches more than 70-1/2 years old, the Internal Revenue Service (IRS) requires them to begin receiving taxable income also call a required minimum distribution from their IRA.
Can an individual make a gift to a charity from their IRA?
Yes. An individual who is more than 70-1/2 years old can make a Qualified Charitable Distribution (QCD) up to $100,000 per year to the charity or charities of their choice. This gift can count as a partial or complete required minimum distribution from their IRA. At the investor’s direction, the IRA administrator makes the check payable to the charity and sends it directly to the charity. Best of all, this QCD potentially has tax benefits for the individual because the donor does not recognize the income to the extent of the QCD.
Can an individual make QCD to a charity from their Roth IRA?
It is possible but usually not recommended. A Roth IRA is a type of IRA funded with post-tax income, which means that tax is paid on income when it is initially invested, and no tax is paid when funds are distributed. QCDs, however, are designed for income that would normally be taxable and Roth IRA distributions are by definition tax-free. Roth IRAs do not require minimum distributions as Traditional IRAs do, which can negate the value. Consult your financial advisor for specific advice on your situation as there may be other more tax efficient ways to make a gift.
Are there are other rules surrounding the use of QCDs?
Yes, the qualified charitable contribution must go to a 501(c)3 charitable organization, like TMF. The donation must be handled by your IRA administrator; simply making a withdrawal from your account and making a donation to a charity will not qualify for the QCD. Donors may not receive any benefits from their gifts, such as tickets to a gala.
Are there restrictions on the types of entities that can receive a QCD?
Yes. The QCD must be to a qualified charity which does not include private foundations, donor-advised funds, gifts for life-income arrangements, or groups that support tax-exempt charities.
TMF Can Help.
If you, or a parent whom you are assisting, are considering how to make a gift from a qualified IRA, we can help you sort from the options available to make a lasting legacy for good. Before making definitive financial decisions, we recommend consulting with your advisor to confirm the specific tax benefits and strategy you select will be the right one for your specific financial situation.
Resources:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals
https://smartasset.com/retirement/all-about-qualified-charitable-distributions
https://www.pgcalc.com/support/knowledge-base/pg-calc-featured-articles/ira-gifts-%E2%80%93-dos-donts-and-dont-cross-red-line