Donating from IRAs
Did you know you can donate Qualified Charitable Distributions from IRAs? If you or a family member are age 70 and a half or older, you may be able to donate to TFS using a pre-tax IRA. By using pre-tax IRA dollars, you may be able to avoid income taxes on IRA distributions when these dollars are given directly to a qualified charity.
Once taxpayers reach a certain age, they must generally begin taking what are called Required Minimum Distributions (RMDs) from their retirement accounts. These RMDs are required amounts that taxpayers must draw from their retirement account annually, which are then taxed as income. The IRS generally allows someone to gift up to $100,000 of their RMD to a qualified charity, thus satisfying part or all of their RMD requirement and potentially avoiding income taxes on the distribution. This strategy is called a Qualified Charitable Distribution.
Prior to the SECURE Act, the RMD age began at 70 ½. However, the RMD age has now been extended. While RMDs no longer apply at age 70 ½, taxpayers may still use the Qualified Charitable Distribution strategy as early as age 70 ½ to gift funds from their pre-tax IRAs directly to charity. This strategy offers potential tax benefits for taxpayers that do not itemize their taxes (they use the standard deduction instead) and helps to satisfy annual distribution requirements for those at RMD age.
For example, Judy is 71 years old and would like to give $1,000 to TFS. She doesn’t itemize her tax return (uses the standard deduction), so giving cash to charities generally doesn’t reduce her income taxes. However, if she gives $1,000 directly from her pre-tax IRA using the Qualified Charitable Distribution, she may avoid paying income taxes on this $1,000 distribution from her pre-tax IRA. This way, she can enjoy the tax benefits of the charitable donation without the need to itemize her tax return.
Please remember, this strategy requires IRA distributions be paid directly to TFS. If you need assistance with this strategy, please contact us and we’ll help you.
Please speak with a tax, legal or financial professional before making any changes to your personal situation. This information is being provided as informational material and should not be construed as a recommendation or advice.