Q. I normally take a portion of my required withdrawal by donating money to charity from my IRA. Since there is no requirement this year, can I double next year? – Calvin
A. Calvin, although the minimum required distributions are not required this year, you can still make charitable donations from your IRA in 2020. The ability to donate this way is age related, not to distribution requirements, so if you are moved to donate, please do so. A lot of people are in need.
Several years ago, §408 (d) (8) became a permanent part of the tax code. It allows people over 70 and a half to make Qualified Charitable Distributions (QCDs) directly from their IRA. Pension plans such as 401 (k) s, 403 (b) s are not eligible. If you are old enough, qualifying charitable distributions are a very tax-efficient way to donate to charity.
Each eligible Traditional IRA owner can make as many contributions from any of their IRAs to an unlimited number of qualified charities, up to a total of $ 100,000 per IRA owner, per year. If you’d rather donate nothing this year and twice as much next year, you can but keep in mind that the 2021 cap will still be $ 100,000 in total.
In most cases, distributions from your IRA result in taxable income. However, if you do a QCD, the amount of the donation is not taxable. Despite this lack of taxation, the donation still counts towards your Minimum Required Distributions (RMD) for the years in which the RMD is applied.
QCDs are most attractive to qualifying taxpayers who use the standard deduction and retailers with deductions such as medical expenses, which are reduced as their adjusted gross income increases.
To do a QCD, verify that the charity is eligible. Most public charities are eligible, but funds advised by donors, support groups, and some trusts are not.
File a distribution request from the company holding your IRA. Most IRA providers offer the option of having the check sent directly to the charity or to you so that you can present the check personally. Just make sure the check is made payable to the charity, not you, and dated after the date you turn 70 and a half.
You will receive a 1099-R which will include the QCD as part of the gross distribution but make sure you do not include the QCD as taxable income. For example, you distribute a total of $ 50,000 from your IRA with $ 40,000 for you and $ 10,000 for your church via a QCD. When you file your return, the 1009-R will show a gross distribution of $ 50,000. Enter $ 50,000 on line 4a “IRA Distributions” on your Form 1040. On line 4b “Taxable amount”, you would only enter $ 40,000. Most tax preparers place the letters “QCD” in the margin to indicate why you are reporting $ 10,000 as non-taxable.
2020 presented serious challenges for many, and nonprofits are stepping up to help. However, many charities themselves are struggling. Some donors have been affected by the economic fallout from COVID-19 and many organizations have had to cancel fundraising events. Donations made now can have more impact than ever.
If you’re interested in learning more about local organizations and their activities, a great source of information on the local nonprofit scene is the Community Foundation for Brevard at www.cfbrevard.org.
Dan Moisand, CFP®, former national president of the Financial Planning Association, has been touted as one of America’s top financial planners by at least 10 financial planning publications. He can be reached at www.moisandfitzgerald.com or at 321-253-5400, ext. 101.