What is an RMD?
Once you hit age 70½, the IRS requires you to start withdrawing from—and paying taxes on—most types of tax-advantaged retirement accounts, this is know as “Required Minimum Distribution”. You will also need to take RMDs from any retirement accounts you inherit. In most cases, RMDs are treated as ordinary income for tax purposes.
Can I donate my RMD to charity and avoid the taxes?
YES. These “Qualified Charitable Distributions” (QCDs) will not be added to your taxable income for the year. A QCD is a direct transfer of funds from your IRA, payable directly to a qualified charity, as described in the QCD provision in the Internal Revenue Code. Amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $100,000. The QCD is excluded from your taxable income. This is not the case with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution later. If you take a withdrawal, the funds would be counted as taxable income even if you later offset that income with the charitable contribution deduction.
Making a QCD as opposed to a normal charitable gift has two main advantages. First, a QCD counts toward satisfying the individual’s required minimum distribution for that year. Second, the distribution is excluded from the taxpayer’s income. (Information taken from the website: https://www.fidelity.com/learning-center/personal-finance/retirement/qcds-the-basics)
Is Bethesda Lutheran Church a QCD?
YES! A charity must be a 501(c)(3) organization in order to receive tax-free IRA charitable contributions. Bethesda is a 501(c)(3) organization.
If you are 72, own an IRA, and donate to charity, QCDs may make sense for you;
as always, consult your tax advisor or accountant to see if this is to your advantage.
