For nearly a decade the rules allowing for a tax free Qualified Charitable Distribution (QCD) from an IRA to a charity has been an on-again off-again part of the infamous Tax Extenders that would lapse and be reinstated every other year.
The Protecting Americans From Tax Hikes (PATH) Act was passed in 2015, finally making the QCD rules permanent, thus making it easier to engage in proactive charitable giving strategies.
What is an RMD? A Required Minimum Distribution – a distribution an owner of an IRA is required to take by April 1st, a year after one is 70 ½. Gifting your RMD to charity helps to minimize the tax bite.
However, obtaining the tax benefits for effecting a QCD from your IRA to a charity requires meeting a few specific requirements, such as being 70 1/2 or older, the maximum gift per year is $100,000 and you may only gift to public charities.
In addition, the most important requirement is that the check must be made payable directly to the charitable entity, not to the owner of the IRA.
Tax Benefits of gifting your IRA to a charity:
You will NOT pay Ordinary Income Tax on the IRA Distribution
The RMD is NOT counted as Gross Adjusted Income
The distribution qualifies as a Qualified Charitable Distribution
How to make the RMD to a Charity: Very Easy
You must be 70 ½ at the time of the distribution
Submit a distribution form from the custodian of your IRA, for example: we work with Schwab – their form is simplified – you decide on the amount of the gift and the address of the organization
The custodian, such as Schwab will send a check DIRECTLY to the Charity
You should call the Charity to alert them to the gift, so the charity will then know who the gift is from, a letter of acknowledgement of your gift should be sent for your tax records.
Donating your RMD is a win – win for you and the charity – you will receive a nice tax break, reduce your adjusted gross income and the charity receives a great gift!!
Written by: ||elizabeth genter, schenley president||