Funding charitable contributions with your RMD
Are you 70½ years of age or older and struggling with the requirement of taking mandatory distributions from your IRA? Have you considered funding your charitable contributions with your required minimum distribution (RMD)?
Perhaps you should.
Charitable gifts made directly from your IRA will count towards your RMD for the next year. While your gift cannot be claimed as a tax deduction, IRA withdrawals donated directly to charity are not counted as income. You will not owe income tax on the withdrawal. Assuming that you do not need the distribution for living expenses, using your RMD may be the answer for your charitable giving.
Donors aged 70½ or older are limited to a maximum of $100,000 in any one year as an IRA charitable distribution. However, there is no requirement that the entire amount be made in one transfer or that the entire amount go to a single qualified charitable organization. You can request multiple direct transfers from your IRA to qualified charities in a year, but only $100,000 will be excluded from income as an IRA qualified charitable distribution.
You may be wondering if gifts from your IRA to the New Braunfels Area Community Foundation qualify as tax exempt distributions. The answer is “yes” to almost all types of funds typically held by community foundations such as scholarship, field-of-interest, unrestricted, and designated funds. The exception to this general statement is that a distribution to a donor advised fund will not qualify for this special treatment. Such distributions do not count as qualified distributions from IRAs under these special rules. You will have to first recognize those distributions as income. You then must calculate charitable deductions according to the general rules pertaining to percentage limitations and itemized contribution reductions.
If you are interested in learning more about ways to use your RMD to fund your charitable giving, please give us a call at (830) 606-9536.