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Qualified Charitable Distributions
When you reach age 70½, they can be a new way of giving.
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As the owner of a traditional IRA, you are likely aware that you are obligated to make required minimum distributions (RMDs) once you reach age 70½. However, you may not have been aware that the RMD can be taken in the form of a qualified charitable distribution, where a qualified charity receives all or part of your RMD, satisfying your obligation and offering a potential tax advantage. (Withdrawals from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.)
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Keep in mind, this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax or legal professionals before modifying your charitable giving strategy.
There are a few rules, naturally. First, you can only make a qualified charitable contribution after you reach age 70½. So, if your 70th birthday takes place January 17, you're not going to be able to make the qualified charitable distribution until July 17, six months later.
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There is a cap of $100,000 of qualified charitable distribution per individual; you can donate more, if you want, but the overage may not have any tax benefits.
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To qualify, the charity must be a qualified 501(c)3 organization. You must also make your distribution check payable directly to the charity in question, as opposed to a director or another individual in the organization. Were you to do that (write a check to an affiliated individual who would then use those funds to write another check directly to the organization) that would be a taxable distribution.
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Would you be able to split your qualified charitable contribution in half, giving half or part to the qualified charity and the remainder as a regular RMD? Yes, you can. You would perform them as separate actions, but so long as they add up to the necessary RMD, you should be fine. Consult with a tax or legal professional before making any changes to your strategy.
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How do you report it on your taxes? There is a section on Form 1040 for reporting IRA distributions. Regular RMDs are taxable events, but for qualified charitable contributions, you would enter 0 (zero) for the taxable amount (assuming that the full amount qualified) and enter "QCD" next to the line.
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If you are interested in supporting a charity, a qualified charitable contribution may be a good option for you to consider. Please feel free to give me or any of my team members a call. You can also reach out to
Elizabeth
or
Dot
to schedule time to get together.
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P.S.
I hope you are enjoying this cooler weather; I'm glad fall has finally arrived!
We look forward to setting time to review with you before the end of the year if you have not done so already. We can discuss RMDs and QCDs (for those of you 70 ½ and older), as well as updating Financial Plans, Retirement Plans, and Account/Policy Beneficiaries. Look forward to seeing you soon!
Please share this article with anyone you think can benefit from it. Thank you for your introductions to people you truly care about; we are grateful to make these introductions and we appreciate the business!
-Erick
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Securities offered through Securities Service Network, LLC. Member FINRA / SIPC
Fee based advisory services offered through Olson Associates, a Registered Investment Advisor
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