Charitable Giving

Did you know that, if you are at least 70½ years old, you can make tax-free charitable donations directly from your IRA?

Making a Qualified Charitable Distribution (QCD) can exclude up to $100,000 annually from gross income while benefitting your favorite charity. These “charitable IRA rollovers” are gifts that would otherwise be taxable IRA distributions!

It’s easier than you think to make a QCD. Instruct your IRA trustee to distribute directly from your IRA to a qualified charity of your choosing. The distribution must be one that would otherwise be taxable to you. You can exclude up to $100,000 of QCDs from your gross income each year. If you file jointly, your spouse (if 70½ or older) can also exclude $100,000 of QCDs.

A QCD can provide several potential benefits. It may be a suitable giving strategy for donors who:

• Are required to take a minimum distribution from an IRA, but don’t need the funds and would face increased tax liabilities if they took the distribution as income.
• Would like to reduce the balance in an IRA to lower future required minimum distributions.

Some Rules Apply:

• Your QCD cannot be made to a private foundation, donor-advised fund, or supporting organization. Beginning with 2023, you will be able to make a one-time QCD of up to $50,000 to a charitable remainder annuity trust, a charitable remainder uni-trust, or charitable gift annuity.
• QCDs count toward satisfying any Required Minimum Distributions (RMDs) that you would otherwise have to receive from your IRA. The caveat is that distributions you actually receive from your IRA (including RMDs) and subsequently gift or transfer to a charity cannot qualify as QCDs.
• If you plan to offset your RMD with a QCD, the transactions must be done in conjunction with one another. You cannot take an RMD and retroactively use those dollars to make a QCD. That would conflict with the “first-dollars-out rule,” which states that the first dollars taken from your IRA will satisfy any required RMD.

Cautionary Notes:

1. You aren’t allowed to deduct QCDs as a charitable contribution on your federal income tax return — that would be double-dipping!
2. Any QCD must be an otherwise taxable distribution from your IRA. If you’ve made non-deductible contributions, then normally each distribution carries with it a pro-rata amount of taxable and nontaxable dollars. However, a special rule applies to QCDs — the pro-rata rule is ignored, and your taxable dollars are treated as distributed first.
3. If you have multiple IRAs, they are aggregated when calculating the taxable and nontaxable portion of a distribution from any one IRA.

Remember you can also name a charity as beneficiary of your IRA, and the charity will not have to pay any income tax on distributions from the IRA after your death.

• After your death, distributions of your assets to a charity generally qualify for an estate tax charitable deduction. If a charity is your sole IRA beneficiary, the full value of your IRA will be deducted from your taxable estate for purposes of determining the federal estate tax (if any) that may be due. This can also be a significant advantage if you expect the value of your taxable estate to be at or above the federal estate tax exclusion amount currently $12,920,000.
• If retirement funds are a major portion of your assets, another option to consider is a Charitable Remainder Trust (CRT). A CRT can be structured to receive the funds free of income tax at your death and then pay a (taxable) lifetime income to individuals of your choice. When those individuals die, the remaining trust assets pass to the charity.
• Finally, another option is to name the charity and one or more individuals as co-beneficiaries.

Reach Out To Us: A QCD may be better for you than a charitable deduction because the IRA assets go directly to charity, so donors don’t report QCDs as taxable income, and don’t owe any taxes on the QCD, even if they do not itemize deductions. Some donors may also find that QCDs provide greater tax savings than cash donations for which charitable tax deductions are claimed. If you have securities that have grown in value since you bought them, it may make more sense and provide greater tax benefit to donate them to charity instead of taking a QCD. We can help you make educated choices for charitable giving in tandem with your estate-planning attorney. Contact Cory Lyon, Financial Advisor, at 561-209-1120, or Paul Wieseneck, CPA, at 561-209-1102, for questions on this topic.

TFG Financial Advisors, LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.