Possible Tax Break through Charitable Contribution from IRA

by Jack Maguire


I was recently visiting with my financial advisor who said that since my 70th birthday is approaching that I will have to start taking required minimum distributions (RMDs) from my IRA.  I would generally need to report these RMDs as income on my tax return.

Instead of taking these distributions as taxable income, however, I have the option to make another kind of distribution, a "qualified charitable distribution" (QCD), which would not be taxable to me.  This QCD is a distribution from an IRA that goes directly from the IRA to a qualified charity.  This QCD has the same age restrictions as the RMD, after age 70, and a QCD counts toward satisfying the RMD requirement for the year of the distribution.

My first thought is that we will gift some of the QCD to Alamo Heights United Methodist.  My wife, Margaret, and I have been attending the Church for the last twenty five years or so.  The Church has always been such a welcoming place to us.  We are always impressed by the wide variety of wonderful activities that the Church is involved in and supports.  So many people in various situations seem to be touched and helped.

One thing the Church does that we really enjoy is the live Nativity scene during the Christmas Season.  Last year we took some photos of the Nativity scene on a freezing cold night and posted them on Facebook.   We were overwhelmed with comments about how beautiful the story of Christmas was told by using real people.

If you are at least 70 1/2, you may, like me, want to consider gifting some of your IRA distributions to our Church as a QCD.

Here are some things I learned about charitable giving with distributions from an IRA.   You should definitely consult your own financial and tax advisors regarding the IRS guidelines and your own situation. 

Gifts of QCDs must be transferred directly from the IRA Custodian to Alamo Heights United Methodist Church.  If you have retirement assets in a 401(k), 403(b), etc. you must first roll those funds into an IRA. 

You will need to write a letter to your IRA custodian instructing them to issue a check to Alamo Heights United Methodist Church.  (See the sample letter).

Your QCD contribution to the Church can be any amount not to exceed $100,000 per year.  ($200,000 if you file a joint return.)   Your contribution counts toward your required minimum distribution.

Your QCD contribution to the Church will not be included in your adjusted gross income, but you can't also deduct the money as a charitable contribution.  But the gift from your IRA made directly from your custodian could give you extra benefits.  You don't need to itemize your deductions to get a tax benefit from the gift (many people who no longer have a mortgage don't itemize their deductions.)   Also lowering your adjusted gross income may help you avoid the Medicare high-income surcharge, which boosts your Part B and Part D premiums.

I know that our gift to the Church will support the teachings of God and Jesus and will help continue the many activities and programs that have a positive impact for many people.  Your gift to the Church by making a QCD transfer from your IRA may be your best option depending on your situation.  Once again, please talk with your tax and financial advisors.