Tax-Wise Giving: How to Make Charitable Donations from Your IRA

As retirement approaches, many people begin thinking about the best ways to give back to their communities and support causes they care about. One often overlooked tax-wise strategy is making charitable donations directly from an Individual Retirement Account (IRA). Known as Qualified Charitable Distributions (QCDs), these gifts offer a unique opportunity to make a difference while reaping tax benefits.

What is a Qualified Charitable Distribution (QCD)?

A QCD, also known as an IRA Charitable Rollover or IRA Charitable Distribution, is a distribution from your taxable IRA to a qualified charity or charities. It allows individuals who are age 70 ½ or older to now donate up to $105,000 (up from $100,00 with an inflation adjustment in 2024) each year. It may also count toward required minimum distributions (RMDs) for people who are age 73 under current rules. A QCD is not taxed, nor is it included in taxable income.

Please note that the gift can only be made from an IRA. Gifts from 401(k), 403(b), and 457 plans are not permitted. Gifts cannot be made to a donor-advised fund, supporting organization, or private foundation.

This strategy is especially beneficial if:

• You are over the age of 70½.
• You are age 73 or older and must take RMDs but do not necessarily need the extra income.
• You want to lower your taxable income while still supporting charitable causes.

Tax Benefits of QCDs

1. Reduce Taxable Income: The key advantage of a QCD is that it does not count as taxable income, unlike typical IRA withdrawals. This can be especially helpful for retirees who want to minimize their overall tax burden, as the additional income from an RMD could push them into a higher tax bracket. It can also be beneficial for those who live in a state where retirement plan distributions are taxable on a state income tax return.
2. No Need to Itemize Deductions: Many retirees opt to take the standard deduction instead of itemizing deductions. QCDs provide the same benefit as a charitable deduction without the need to itemize.
3. Lower Adjusted Gross Income (AGI): By reducing your AGI, a QCD can also help lower your Medicare premiums and reduce the impact of other taxes, such as the tax on Social Security benefits.
4. Can Be Used to Satisfy a Pledge to Charity: An IRA charitable rollover can satisfy a pledge without violating rules against self-dealing.

2024 QCD Limits and Rules

For 2024 and with an adjustment for inflation, you can now donate up to $105,000 per year through a QCD. This limit applies per individual, meaning a married couple could give up to $210,000 if both spouses meet the age requirement and have their own IRAs.

Additionally, the SECURE 2.0 Act recently introduced a provision allowing a one-time QCD of up to $50,000 ($53,000 in 2024 with an inflation adjustment) to be made to a charitable remainder trust (CRT) or charitable gift annuity (CGA). This opens new avenues for creating income streams while supporting the causes that matter most to you.

How to Make a Gift to the East Tennessee Foundation Using a QCD

Making a QCD gift is simple but must be done correctly to ensure the tax benefits are received. Here are the steps:

1. Check Eligibility: Make sure you are at least 70½ years old at the time of the donation.
2. Contact Your IRA Custodian: Instruct your IRA administrator to transfer the funds directly to the East Tennessee Foundation to create a new fund or to benefit the fund or funds of your choice. You cannot withdraw the funds and then donate them yourself.

A Win-Win Strategy

Using QCDs to make charitable contributions is a smart way to reduce your tax liability while supporting organizations and causes close to your heart. Whether you are looking to manage your RMDs or simply want to give more effectively, this strategy can help you maximize the impact of your philanthropy.

Before making any decisions, consult with your financial advisor or tax professional to ensure that a QCD aligns with your broader financial and philanthropic goals. Once you have done that, please contact our office. We will answer your questions, provide instructions for completing your gift, and discuss the purpose for which you would like your gift to be used.

For more information, please contact Angelia Nystrom, our VP of Advancement & Chief Legal Counsel, at an******@*tf.org.