Tax-Free Donations from Your IRA

New Year Financial Advice for Tax-Free IRA Donations QCDs

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How to Make Qualified Charitable Distributions (QCDs) Your IRA

2020 has been a challenging year for many nonprofit organizations. If your annual holiday plans include donating money, you may want to consider using your IRA to make a tax-free gift in the future. These transfers are called Qualified Charitable Distributions or QCDs, and they allow IRA owners who are age 70-1/2 or older to directly transfer up to $100,000 from an IRA to charity tax free. 

Important things to know about QCDs

  • Must be age 70-1/2 or older.
  • The money must go directly to the charity.  You may not take a distribution from your IRA and then contribute to a charity and consider that transaction as a QCD.
  • You should talk to your tax preparer before you make a QCD to make sure it does not conflict with your current tax plan. 
  • You can make donations of any size up to $100,000 per IRA owner. 
  • Donors cannot receive any benefit in return for the donation (you can’t use the money to buy things at a charity auction, etc.) 
  • A QCD can satisfy your Required Minimum Distribution. 

QCDs and Required Minimum Distributions (RMDs) from IRAs

Although it is likely they will be back in 2021, Required Minimum Distributions have been waived for 2020. If you are required to take a RMD next year and you do not need the income you can avoid paying taxes on that money by donating it directly to a qualified 501(c)(3) organization. This has the advantage that the income will not be included in your adjusted gross income AGI, which can keep your income below certain thresholds that will work for your benefit.

Planning your QCD in advance

If this is something you might be interested in, please let me know and I’ll work with you to formulate a plan.  It’s best not to wait until the last few days of the year so you have enough time to execute your plan. You may make a QCD any time of the year, but the deadline for tax-year purposes is the last day of the year.

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