Charitable IRA Distributions

Eric Jorgensen, CFP®

            Most of us are aware the IRS requires us to take distributions from IRA’s no later than the year you reach 70 ½ (Source For those who don’t necessarily “need” the money this can become an extra tax burden, and could impact how much they are paying for Medicare; because Medicare Part B premiums are based upon income reported (2) years ago (Source

            So, what can you do if you don’t want to pay an increased income tax, increased Medicare and you don’t really “need” the money? One option, and the focus of this article; is to donate some or all your required minimum distribution (RMD) to a charity – up to $100,000. It’s important to note distributions from employer sponsored plans, which include SEP and SIMPLE IRAs, are not included – this is just traditional IRAs (there are no RMD’s for a Roth at 70 ½). If you’re married, your spouse may also make up to a $100,000 charitable distribution – so effectively you could avoid having your income increase by as much as $200k per year!

            Q: What if you do need some of your distribution?

A: You’re not required to transfer the entire distribution, and you’re not limited to one charity.

Q: How is this better than taking the charitable deduction when filing my taxes?

A: If you take the distribution it counts as income. A charitable deduction only counts if you itemize, and even then, you’re limited to a deduction of a maximum of 50% of your income. Donating the distribution ensures it is never counted as income.

Q: How do I report this to the IRS?

A: You would report the charitable distribution on the line for IRA distributions. If the full amount of your distribution was qualified, the amount you would enter is $0; with a “QCD” next to this line.

Q: If I make a charitable distribution, may I still claim charitable deductions?

A: Yes, but not for the same thing. For example, if you make a $15,000 distribution from your IRA to a charity, and you also make a $5,000 donation from a 401k distribution; you could deduct the $5,000 donation from your taxable income (if you itemize).

This is just one idea of how to have an impact with causes you believe in and support. For advice directly related to your circumstances consult with an Advisor or accountant. This is not for everyone, and once the distribution has been made it cannot be undone for that year – so be sure it’s something you can afford to do.


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