One of the recurring questions we hear from givers is, “How can I use IRA money to fund my giving?” The answer is not simple, which is why it is such a good question! Here is a high-level summary of the rules on this topic*.
If you are younger than 70 ½ years old
If you are between the ages of 59 ½ and 70 ½, you can take distributions from your IRA without penalty. However, these distributions are taxable income to you. You can make gifts from this money to your NCF Giving Fund, and those gifts will be deductible up to 60% of your total adjusted gross income for the year.
If you are over 70 ½ years old
You are required to take minimum distributions from your IRA each year according to a formula establish by the IRS beginning at age 72. These are called RMDs (Required Minimum Distributions). You may also take additional money beyond the RMD, if you choose. Any money you receive in distributions from your IRA is taxable to you, EXCEPT when you distribute some of this money directly to charity. If you are over 70 ½ years old, you can distribute up to $100,000 each year directly to charity without paying any tax, and those distributions will count toward your RMD.
*Note that under the CARES Act, RMDs have been suspended for 2020.
What does it mean to distribute this money “directly to charity?”
Under current rules, distributions must go to either (1) a specific operating charity or church, or (2) to a fund at NCF that has been designated for a particular operating charity or church. Distributions to your donor-advised fund (Giving Fund) are not considered to be “direct to charity” and are taxable to you.
What is a Designated Fund?
A Designated Fund at NCF is a single identified organization, an enhanced type of fund that identifies a singular charity as the sole eligible recipient of grants from that fund.
- A Designated Fund can receive distributions from your IRA, tax free, if you are older than 70 ½.
- As the Advisor of a Designated Fund, you determine the timing and the amount of the grants to be sent to the charity. This allows you to set aside money for a favorite charity and see that money distributed over time – instead of a single lump sum.
- You may have more than one Designated Fund to support more than one charity.
- Funds in a Designated Fund may be invested in the NCF pools and have the opportunity to grow beyond the initial gift. A Designated Fund may also receive future IRA distributions, as well as other contributions.
- A Designated Fund can be a component of your Succession Plan. You may name Successor Advisors to recommend the timing of grants from your Fund to charity beyond your life time.
If you have any questions, or would like help with establishing a Designated Fund, please contact us at 847.607.9569 or firstname.lastname@example.org
*NCF does not provide tax or legal advice. Please consult with your attorney, CPA, financial advisor, and/or tax advisor to analyze your particular situation prior to entering into any gift arrangement.