How can I use my IRA to fund my charitable giving
Updated October 2020
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.
What is a Qualified Charitable Distribution?
The Qualified Charitable Distribution (QCD) rules allow eligible taxpayers to make IRA distributions payable directly to a qualified charity without treating the distribution as taxable income. This law permits up to $100,000 per eligible IRA owner to be contributed directly from their IRA to charity. In addition, the distribution can be used to fulfill the IRA owner’s Required Minimum Distribution (RMD) for the year which is discussed below.
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 withdrawal to your NCF Giving Fund or to charity, and those gifts will be tax deductible up to 50% (in combination with your noncash gifts) or 60% (if you are not making noncash gifts) of your total adjusted gross income for the year. A 5-year carry forward is available for contributions you weren’t able to deduct in the current year.
QCDs from your IRA only – if you are over 70 ½ years old
You can make a distribution from your IRA up to $100,000 per year directly to charity (a QCD) without paying any income tax. Those distributions will count toward your RMD if you are required to take one. QCDs are available even if you do not have a RMD.
“Can I use my NCF Giving Fund for my QCD?”
Under current rules, QCDs 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 an NCF Designated Fund (different than a NCF Giving Fund) are permissible. QCDs are available even if you do not have a RMD.
“How does a QCD work with RMDs?”
You are required to take minimum distributions from your IRA each year according to a formula establish by the IRS. 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 (a QCD). You can distribute up to $100,000 each year directly to charity without paying any tax, and those distributions will count toward your RMD.
2020 RMDs – If you are over 70 ½ years old (or 72 years old after 12/31/19)
The Cares Act allows you to waive your 2020 RMDs to avoid having to sell and distribute assets from these retirement accounts under volatile market conditions. The SECURE Act moved the age for RMDs from 70 ½ to 72 for anyone who turns 70½ after December 31, 2019. Resuming in 2021, you are required to take minimum distributions from your IRA or defined contribution plan each year according to a formula establish by the IRS. You may also take additional money beyond the RMD, if you choose. Any money you receive in distributions is taxable to you. Note that the QCD opportunity (discussed above) will count toward your RMD.
Note that there were two significant tax changes that you should be aware of that apply only in 2020. This year, the CARES Act includes a provision to encourage charitable giving during this difficult time, up to 100% of your AGI.
- You can make charitable gifts up to 100% of your AGI in 2020 and, if you are 59 ½ you can use this opportunity to withdraw from your IRA or defined contribution plan without penalty (taxable event) and gift to a charity (tax deduction). NCF can help you with a Designated Fund if you do not want all of the QCD to go directly to a charity.
- Additionally, those taking required minimum distributions (RMDs) from IRAs and defined contribution plan accounts may waive their 2020 RMDs to avoid having to sell and distribute assets from these retirement accounts under volatile market conditions.
What is a Designated Fund?
A Designated Fund at NCF is 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 multiple Designated Funds if you want to use your QCD 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 lifetime.
For more information:
Click here to download the IRA Charitable Rollovers with NCF
Click here to download the NCF Designated Fund Application
Click here to review the IRS website on Retirement Topics — Required Minimum Distributions (RMDs)
If have you any questions, or would like help with establishing a Designated Fund, please contact us at 262.796.9910 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.