Giving Well From Your IRA

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Qualified Charitable Distributions, or QCD’s, are distributions that go directly from your IRA, to the charity of your choice.  How can you use them for your benefit, as well as for the benefit of charities you want to support?

Before you consider QCD’s as a strategy, you are well served answering three questions, which are:

1         Are you at least age 70.5, and therefore subject to the Required Minimum Distribution rule?

2        Do you have required distributions from your IRAs, which you don’t need for household use?

3        Are there charities which you want to support?

If the answer to those three questions is yes, you may want to consider QCD’s.  How do you approach the decision and process?  We would suggest the following:

1.       Decide how much you want to give,

2.       Confirm that there is adequate cash in your IRA,

3.       Sign the required forms.

Let’s look at each of these in more detail.

Deciding how much you give is a personal decision, though you must be at least age 70.5 when the QCD gift is made.  You may want to take into account the long term viability of your cash flow, and your role in the organizations you support, among other things.  The charity you give to needs to be able to receive the tax deductible contributions of an individual, meaning that in general, it needs to be a 501(c)3 organization.

The transfer from your IRA is limited to $100,000 annually, though these qualifying distributions can come from more than one IRA, and go to more than one qualifying organization.  Note that the distribution, in order to qualify under the QCD rules, must be an institution to institution transfer.  This means that the distribution check cannot be made payable to, and/or sent to, the IRA owner, and then sent along to the charity.  The distribution check must go directly from the IRA custodian to the qualifying charity.

The tax benefit?  This institution to institution distribution, under the QCD rules, doesn’t come to you as a taxable distribution.  All other forms of IRA distributions, except transfers and rollovers, are taxable distributions to you.  This means that, except for using QCD’s, your Required Minimum Distributions (RMD’s) are fully taxable as income, and increase your Adjusted Gross Income (AGI).  You do not take QCD’s as taxable income.  Neither do you get take the deduction on Schedule A, though avoiding the whole dollar of income is generally better than the partial dollar value of a deduction.

IRA custodians have service forms, which you can complete, directing the custodian where to send the distribution.  These forms can be downloaded from the custodian website, emailed to you by the custodian’s service team, or mailed to you in hard copy format.  Call the charity to confirm the exact name for the check and the mailing address.  You may also want to let them know a check is on the way.  Note that IRA custodians typically don’t keep track of where checks go, nor do they track the tax year for which a distribution is attributable.  The custodian’s service forms usually have memo lines, which can be used by you for noting the receiving organization, the tax year, and the dollar amount.

Additionally, make sure to keep copies of any and all forms, whether in electronic or hard copy format.  Your custodian will send you a 1099 and you will record this distribution on your tax return on Line 15a as a non-taxable distribution.

Finally, remember the standard disclaimer.  What you have just read is general information.  None of it should be construed as personal legal, tax or financial advice.  Consult your own professionals to determine the best course of action for your personal situation.

Centurion Advisory Group was founded to offer clients a place to focus on the integration of life, money, and purpose.  Our focus is on offering advice, planning, and investment management services in a way that allows clients to feel as if they have mastered the use of money, have the freedom to enjoy life, and the desire to live with purpose.  As a professional services firm, we are paid solely by clients, and receive no compensation from product sales or product vendors.  The professionals who are part of the CAG team help families build, maintain, and transfer wealth, consistent with the family's goals.  For more information about the company and its services, go to www.centurionag.com, or email info@centurionag.com, or call 770.817.0525.