Smart Donations Using your IRA

Use the following tax strategy to get more from your 2018 Required Minimum Distribution (RMDs) from your IRA account.

 

Under the new tax law, those taking RMDs get a tax break even without itemizing by giving to charity.  2018 marks the beginning of a new era in tax planning.  Changes in the law mean it’s less likely you will itemize your deductions, it means rethinking your strategy as it relates to minimizing your tax bill.

 

That is where the Qualified Charitable Distribution (QCD) can help.  Using the QCD is a tax-savvy strategy that allows you to transfer up to $100,000 per year from your IRA directly to a qualified charity.  Only available to individuals who have reach RMD age 70 ½.

 

Example:  A couple who have annual RMD between the two of them of $24,000, can instead direct $10,000 (more or less) to Otsego County Community Foundation as a QCD, it will reduce their taxable income by $10,000 and they still get to claim the standard deduction of $26,500.  If they are in the 24% tax bracket, by using this strategy, they would have saved $2,400 in federal taxes.  This strategy should become commonplace in 2018 and beyond.

 

FREQUENTLY ASKED QUESTIONS:  What is a charitable IRA rollover?  The charitable IRA rollover, or qualified charitable distribution (QCD), is a special provision allowing donors to exclude gifts from taxable income and count toward their Required Minimum Distribution.

 

How does this help me?  A charitable IRA rollover (QCD) makes it easier to use IRA assets, during lifetime, to make charitable gifts.

What gifts qualify for a charitable IRA rollover?  A “Qualified Charitable Distribution (QCD),” is:  1) Made by a donor age 70 1/2 or older on the date of transfer.  2) Transferred from a traditional IRA directly to a public charity, such as the Otsego County Community Foundation.  3)  Completed during the tax year.

Is there a limit on the amount that can be given?  Yes, there is a limit. An individual taxpayer’s total qualified charitable distribution (QCD) gifts cannot exceed $100,000 per tax year.

What about the required minimum distribution?  If you have not already taken some of your required minimum distribution (RMD) in a given year, a qualifying QCD gift can count toward satisfying this requirement.

Is an income tax deduction also available?  No. The gift would be excluded from income, so providing a deduction in addition to that exclusion would create an inappropriate double tax benefit.

Why are Roth IRAs included? Aren’t withdrawals from a Roth IRA tax-free?  Withdrawals from a Roth IRA may be tax-free only if the account has been open for longer than five years or if certain other conditions apply. Otherwise, withdrawals are taxed as if they came from a traditional IRA. Therefore, certain Roth IRAs could benefit from a charitable IRA rollover.

Can other retirement plans, such as 401(k) and 403(b) accounts, be used?  No. However, it may be possible to make a tax-free transfer from such other accounts to an IRA, from which a charitable rollover can then be made.

Can a gift be made to any charity?  No. Excluded are:  Donor advised funds, supporting organizations, and private foundations.

Who can benefit from using the charitable IRA rollover to make a gift?  Persons having so few deductions so they choose not to itemize.  Persons with significant assets in an IRA.  Persons making gifts that are large, relative to their income.

Can a rollover gift be used to fund a charitable remainder trust or charitable gift annuity?  No. The donor can receive no benefits in return for the gift. This includes life income plans.

What if a withdrawal does not meet the requirements of a charitable IRA rollover?  It simply will be included in taxable income as other IRA withdrawals currently are.

Is the charitable IRA rollover right for everyone?  While this is a great option, other types of gifts may provide donors with more tax benefits. Outright gifts of appreciated assets (stock, mutual funds and other securities) provide an tax deduction plus avoid any capital gains tax.

Can I still make a gift with an IRA beneficiary designation?  Absolutely! Whether or not you choose to make a charitable IRA rollover gift, you can still designate the Otsego County Community Foundation as a beneficiary to receive IRA assets after your lifetime. The lifetime charitable IRA rollover is simply another option for donors who would like to see their philanthropy at work now.

If I made a charitable IRA rollover gift in other tax years, can I do this again for the current tax year?  Yes. The current law extends the charitable IRA rollover provision indefinitely — with no expiration date — allowing individuals to make qualifying gifts every tax year.