…and give the savings to our church!
Submitted by: Bill Derrickson, Treasurer
(Special thanks to Fidelity and Vanguard Investments for their inputs)
You can reduce your income taxes if:
- You no longer itemize your tax deductions and are past age 70 ½
- You are required to take a minimum distribution (MRD) from your IRA
The option is now available to make that distribution tax-free by directing it to the charity of your choice. These distributions can be a convenient way to support charitable causes and get a tax break while meeting the tax requirements for IRAs.
In understanding qualified distributions, it’s helpful to recall the basics of required minimum distributions (RMDs): If you’re age 70½ or older, you generally must withdraw a minimum amount each year from your traditional IRAs (Roth IRAs are excluded) and employer-sponsored retirement plans. Unfortunately, the money you are required to withdraw under this scenario gets added to your taxable income! Failure to take your RMD by year-end could result in a stiff IRS penalty—50% of the amount you should have withdrawn.
Under the Qualified Charitable Distributions (QCDs), beginning at age 70½, you can have all or part of your distribution made directly from your IRA to a qualified charity such as UUCC (up to $100,000 per taxpayer, per year). Unlike conventional RMDs, QCDs are not subject to ordinary federal income taxes.
How to take advantage of the QCD rule
For example, suppose that in 2017 you’re over age 70½ and you’d like to make a contribution to your favorite charitable organization. You may have your 2018 RMD made payable directly to the charity (provided it meets the IRS definition of a qualified charity, (UUCC is now registered as a 501(c)(3)), and then designate it as a qualified charitable distribution on your tax return. You will have satisfied your distribution requirement, and you won’t have to pay income taxes on that money.
Be aware that you cannot double-dip and also claim the qualified distribution as a charitable tax deduction—the amount is simply excluded from your taxable income.
I urge you to review this information with your IRA custodian so it can be done without worry. Below I have listed the rules for a Qualified Charitable Distribution as listed by Fidelity Investments on their website.
- You must be at least 70½ years old at the time you request a QCD. If you process a distribution prior to reaching age 70½, the distribution will be treated as taxable income.
- For a QCD to count towards your current year’s MRD, the funds must come out of your IRA by your MRD deadline, which is generally December 31 each year.
- Funds must be transferred directly from your IRA custodian to the qualified charity. This is accomplished by requesting your IRA custodian issue a check from your IRA payable to the charity. You can then request that the check be mailed to the charity, or forward the check to the charity yourself. Note: If a distribution check is made payable to you, the distribution would NOT qualify as a QCD and would be treated as taxable income.
- The maximum annual distribution amount that can qualify for a QCD is $100,000. This limit would apply to the sum of QCDs made to one or more charities in a calendar year. If you’re a joint tax filer, both you and your spouse can make a $100,000 QCD from your own IRAs.
Please contact Bill Derrickson, Church Treasurer, if you would like to personally discuss your situation.