IRA Gift – Qualified Charitable Distributions
MAKE TAX-FREE GIFTS FROM YOUR IRA!
The SECURE (Setting Every Community Up for Retirement Enhancement) Act allows you to transfer up to $100,000 per year using funds from your individual retirement account (IRA) resulting in several positive tax effects. As your financial situation is unique, please consult with your financial advisor or tax professional for guidance.
Are you age 70 ½ or older, charitably inclined and looking for the best way to help your neighbors in need during the Coronavirus crisis? If so, consider directing a Qualified Charitable Distribution (QCD) from your traditional IRA to ThinkTV. Even though the CARES Act allows you to waive your Required Minimum Distribution (RMD) for 2020, you can still donate through your IRA using your QCD.
What do these acronyms mean?
- QCD – QUALIFIED CHARITABLE DISTRIBUTION: An otherwise taxable distribution from an individually-owned IRA (owner must be 70½ or older) paid directly from the IRA by the IRA trustee/custodian to a qualified charity.
- RMD – REQUIRED MINIMUM DISTRIBUTION: The minimum distribution an IRA owner must take from his/her IRA each year (owner 72 or older – formerly 70½). The RMD is calculated based on the total balance of all the owner’s IRAs on Dec. 31 of the previous year and a factor related to the owner’s life expectancy. Although the age for RMDs changed from 70½ to 72, QCDs are available for individuals 70½ or older.
- The CARES Act (Coronavirus Aid, Relief, and Economic Security): With its passage in March 2020, all RMDs are suspended for 2020, including those for inherited IRAs as well as traditional IRAs. Think carefully about whether to take advantage of this suspension. If the effects of the pandemic dropped you into a lower tax bracket, it might make sense to take the RMD out of the IRA this year while you’re in a lower tax bracket.
Primary benefits of a Qualified Charitable Distribution
You may make charitable gifts, up to $100,000 per year, from your IRA and benefit from a tax standpoint:
- The QCD is not included in your Adjusted Gross Income (AGI) and therefore is not taxed.
- The QCD is counted toward the RMD. Thus, you may satisfy all or part of the required minimum distribution with QCDs, but without having to pay federal income tax on that portion of the distributions. This is particularly advantageous if you do not have a financial need for your full RMD.
Secondary benefits of a Qualified Charitable Distribution
Because the QCD is not included in Adjusted Gross Income (AGI), your taxable income is reduced compared to what it would be with a full RMD. There are a number of secondary benefits resulting from reducing taxable income:
- Since taxable income is lower, your tax bill is lower. Because of the recent increase in the Standard Deduction, you may no longer itemize deductions. The QCD is a way to reduce taxable income anyway.
- The deductibility of medical expenses is dependent on AGI. By reducing AGI, the possibility of deducting medical expenses increases.
- Medicare and prescription drug coverage premiums increase with AGI. By keeping AGI low, these increases may be reduced or eliminated. Taxability of Social Security benefits increases as income increases. By keeping income low, taxes on Social Security benefits may be reduced or eliminated.
- A reduction in taxable income may also reduce potential liability for the Alternative Minimum Tax.
- For Ohio taxpayers, the starting point for determining taxable income is the federal AGI, reducing the federal AGI reduces Ohio taxable income as well.
You may contribute funds from your IRA if:
- You are age 70½ or older at the time of the gift.
- You transfer directly from your IRA. This opportunity applies only to IRAs and not to other types of retirement plans.
- You transfer the funds outright to one or more qualified charities. The legislation does not permit direct transfers to charitable trusts, donor advised funds, charitable gift annuities or supporting organizations. The distribution must be made directly from the IRA to the charity. The IRA owner may take a check from the IRA trustee/custodian made out to the charity and deliver it but cannot, at any time, have access to the funds.
- You make your gift by December 31 for the gift to qualify this year.
Common questions from donors:
A1. No. The legislation requires you to reach age 70½ by the date you make the gift.
A2. Yes, absolutely. If you have not yet taken your required minimum distribution and are required to do so, the QCD may satisfy all or part of that requirement. The SECURE Act, passed in late 2019, increased the age at which IRA owners must begin required minimum distributions from 70½ to 72; however, the age for making a QCD remains age 70½. This creates a unique planning opportunity.
A3. No. If you are not currently contributing to your IRA, you may give any amount under this provision, up to $100,000.
A4. No. Under the law, you may give a maximum of $100,000. For example, you and may give each organization $50,000 this year or any other combination that totals $100,000 or less. Any amount of more than $100,000 in one year must be reported as taxable income.
A5. Yes. Direct rollovers to a qualified charity may only be made from an IRA. If you have a pension, profit sharing, 401(k) or 403(b) plan, you must first roll over all or a portion of that plan to an IRA. You may then use the funds from the IRA to complete the direct IRA rollover to a qualified charity. To determine if a rollover to an IRA is available for your plan, speak with your plan administrator.
A6. If you have a spouse (as defined by the IRS) who is 70½ or older and has an IRA, he or she may also give up to $100,000 from his or her IRA if you are not currently contributing to it. Each IRA holder has their own limit. If you are currently contributing pre-tax income to your IRA, the maximum amount you may donate tax-free may be reduced.
A7. The QCD is not deductible as a charitable contribution if the IRA owner itemizes deductions. Because the QCD is not included in taxable income it cannot also be used to reduce taxable income through itemizing. That would be “double dipping.”
To report a QCD for your taxes when you do not itemize, follow this example. Let’s say you take a $10,000 RMD. You wish to allocate $3,000 as a QCD and $7,000 for you to use as income. You will receive a Form 1099-R reporting the IRA distribution. On your Form 1040, there is a separate line item for reporting the taxable portion of your QCD (line 4b).
Summary
Make your gift by December 31, for your gift to qualify this current year.
IRA Charitable Gift Request Form for IRA Administrator
Legal Name: Greater Dayton Public Television (ThinkTV)
Address: 110 S. Jefferson St., Dayton, OH 45402
Tax Identification Number (EIN): 31-0858459
Please consult with a financial advisor or tax professional to determine what is best for you.
Please contact me with any questions you may have about making a gift from your IRA: Laura Letton, CFRE – Major & Planned Giving Director
lletton@thinktv.org or (937) 220-1647
