Using an IRA for Charitable ContributionsSubmitted by Mission Financial Planning on July 26th, 2016
Updated for the new SECURE Act: For any individual born after June 30, 1949, the required beginning date for Required Minimum Distributions (RMDs) is April 1 of the year after the year in which such individual reaches age 72 (or, in the case of certain plans, if he or she is still working, after the year in which he or she retires if later). Previously, the trigger age was 70½.
IRA owners over age 70.5 can make charitable contributions directly from their IRA; this is called a Qualified Charitable Distribution (QCD)*. You can make charitable contributions from your IRA, of up to $100,000, including your Required Minimum Distribution (RMD), without treating the distribution as taxable income - it goes directly to the charity instead. This avoids adding income to your tax return and might help you avoid triggering certain tax thresholds.
A non-charitable withdrawal or distribution (whether discretionary or required) from a traditional IRA is taxable, included in adjusted gross income. As a result:
- Income taxes on Social Security benefits can increase,
- AGI limitations on itemized deductions can be triggered, and
- Medicare insurance premiums can increase.
Until recently, the QCD was a provision that had to be approved by congress on a year by year basis; it was recently made permanent. Now that we can count on it being there, this will be a useful tax planning tool.
If you decide to donate from your IRA,
- be sure the organization is a qualified public charity. You cannot use a QCD to donate to a donor-advised fund or a private foundation, for example.
- Be sure you receive acknowledgement of the contribution,
- Be sure the donation is a transfer from the IRA direct to the charity; the check must be made out to the charity.
When you make the charitable contribution from the IRA, it is already tax-advantaged, do not take a charitable deduction on your tax return.
If you are making deductible IRA contributions in the same year, limitations will apply to the QCD.
*you cannot use an RMD from a 401(k) to make a Qualified Charitable Distribution
Other posts in the RMD Series cover
- RMD Basics
- Thinking About RMDs Before You Turn 70
- How RMDs Work In Real Life
- Special Situations – exceptions to the rules
- Roth IRAs and RMDs
- Pitfalls of RMDs – some things to be extra careful of when you’re RMD aged.
- RMD Strategies
- What Happens When You Forget an RMD
- RMDs for Business Owners and Employees