Help your Favorite Charity: Making Gifts of Impact Through Your IRA
You may give up to $100,000 from your individual retirement accounts to your favorite charity without tax consequences! Is this true? YES! To see if this is for you answer these three questions:
- Do you have an Individual Retirement Account? (Better known as an IRA)
- Are you 70.5 years of age or older?
- Do you want to give money to charity?
If you answered yes to all three questions you are in luck. Every year people who have attained age 70.5 or above must take money out of their IRAs. This is commonly called the “Required Minimum Distribution” (RMD). The penalty for not taking this RMD is equal to 50% of the amount of the distribution.
Why does the IRS require this distribution?
Simply put, if you invested in an IRA, you have had the advantage of not paying taxes on this money for many years. In fact, many investors have enjoyed a tax deduction while salting money away, whether in a traditional IRA, 401(k) or other retirement vehicle that was subsequently transferred into your IRA. Now the IRS wants its taxes!
In 2005, in the aftermath of Hurricane Katrina, Congress inserted wording in the tax code that allowed for up to $100,000 of Qualified Charitable Distributions (QCDs), from the IRAs of taxpayers who had attained the age of 70.5. In subsequent years, Congress reauthorized QCDs until they became a permanent part of the tax code in 2015.
What are the benefits of QCDs?
- You will not pay tax on the RMD.
- The RMD does not raise your taxable income, which could possibly trigger increased Social Security taxes and higher Medicare part B and D premiums
- The charity gets 100% of the RMD, not the after-tax portion.
With the changes in the tax code in 2018, fewer people can itemize deductions--meaning charitable deductions were lost to many.
QCDs are a way to give money to charity and benefit by not paying taxes on the RMD. Not a tax deduction but definitely a tax savings. Remember, RMDs are added to your other income and are taxed at your highest tax rate. You must make sure you follow the specific rules of QCDs or the RMD will be included in your taxable income.
You may spread your QCDs among as many qualified charities as you wish as long as you stay within the $100,000 limit.
Before spreading your largesse, I would urge you to carefully consider the impact a large charitable gift can have. Giving $5,000 to each of five or ten charities is nice, but the impact of a $25,000 or $50,000 gift to one charity can create a huge organizational growth and power some serious good.
Talk to the development staff or the CEO of your favorite charity to assess what a gift impact may mean to their organization. Thoughtful, laser-focused giving magnifies your ability to change lives—and even your community or city—for the better.
Bob Buford in his book “Half Time” said:
“'One of the most common characteristics of a person nearing the end of the first half (of the game of life) is that unquenchable desire to move from success to significance.”
The desire for significance only gets stronger as we age. Qualified Charitable Distributions offer a chance to have significant impact.
Adron Krekeler AIF®, ChFC ® is an author, speaker, financial planner and wealth manager in Alexandria Virginia. He can be reached at 703-740-4670 or Adron@krekelerbrowerwa.com.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Private Advisor Group (PAG), a registered investment advisor. PAG and Krekeler Brower Wealth Advisors are separate entities from LPL Financial.