I want to share with you a giving method that has proven advantageous to me and one of my favorite investments, Grace University.
In December 2015, Congress made permanent a law allowing you to give up to $100,000 to charity directly from your individual retirement account (IRA) when you are over 70 1/2 years old without counting the distribution as taxable income. This type of charitable gift is called a Qualified Charitable Distribution (QCD). I have used this method of giving for a good number of years but each year waited to see if it would be renewed. Now it is possible to plan for current and future years.
When you take money out of your IRA it is a taxable event, whether it is the Required Minimum Distribution (RMD) or a larger amount. The withdrawal adds to your taxable income and inflates your adjusted gross income (AGI). Since a QCD is not taxable income in the first place, it has no effect on your AGI. This is important because itemized deduction phase-outs, exemption phase-outs, Roth contribution eligibility, the net investment income Medicare surtax, Medicare premium costs, the taxability of Social Security income, and some credit phase-outs all factor off your AGI. Furthermore, giving a QCD directly from your IRA can allow you to benefit from charitable giving even if you don’t normally itemize your deductions. Giving directly from your IRA allows you to ignore your QCD IRA distribution when calculating your taxable income and also take the standard deduction.
Normally, charitable giving can only be deducted if it is less than 50% of your AGI. Giving directly from your IRA allows you to effectively reduce your AGI even if the gift amount would otherwise be greater than 50% of your AGI. Qualified Charitable Distributions count as IRA distributions and can be used to satisfy all or part of your Required Minimum Distribution (RMD). This makes them particularly useful for senior citizens who are still working, have a large pension, or, in general, find themselves in a higher tax bracket.
The Board of Trustees of Grace University approved a budget last summer that anticipates significant financial support from friends and alumni this year end. I encourage you to make a significant Qualified Charitable Distribution from your IRA, as I have done. I am very willing to answer any questions you may have regarding how to process this. Please notify Grace University of a check coming from your IRA custodian so checks sent direct to the charity are donors identified.
Enjoy the season of Thanksgiving as a time of giving and a time for family celebration.
Mel Friesen, Planned Giving Volunteer
How To Do A Qualified Charitable Distribution (QCD)
- Already be age 70 ½ on the date of distribution
- Submit a distribution form to the IRA custodian, requesting that the check be made payable directly to the charity
- Ensure that no tax withholding is being done from the QCD to the charity (as the money must actually go to the charity to qualify, and as a non-taxable distribution no withholding should be necessary)
- Send the check directly to the charity, or to the IRA owner to be forwarded along to the charity
While the process of completing a QCD to a charity is fairly straightforward, the key administrative requirement is that the distribution check must be made payable directly to the charitable entity. If the funds go to the IRA owner and are then passed along to the charity, it is still a taxable distribution to the IRA owner and not a QCD.