Required Minimum Distributions (RMD) for Charitable Giving

It is that time of year again when investors that have an IRA and are over the age of 70 ½ will be taking their Required Minimum Distribution (RMD).

As you may be aware, the standard tax deduction was increased to $12,200 for individuals and $24,400 for married couples filing jointly. As a result, a donation to charity for many people will no longer be tax-deductible because they will not be itemizing their deductions. 

However, if you donate to a qualified charity directly out of your retirement account as part of your RMD, you may lower your taxes. 

Here is an example: 

Let's say you're in the 22% tax bracket. If you collect $10,000 from your RMD, you would owe $2,200 in federal income tax. (We are not including state and/or local taxes in this hypothetical example for the sake of simplicity.) If you donated $10,000 to charity from your regular checking account and didn't itemize, you would receive no tax deduction for your generosity. 

If instead you donated the $10,000 directly from your retirement account, it would not be included in your taxable income for the year, and you would not owe the additional $2,200 in taxes. 

To give a donation from your RMD, the funds must be paid directly from your IRA by the account custodian to a qualified charity. If you write the check yourself, it will not be eligible. 

When you do the paperwork to take your RMD, designate that this is a Charitable Donation and fill in all of the necessary information. Your custodian would then issue a check directly to the charity as a qualified charitable distribution (QCD). You would then follow up with the charity to obtain a receipt of your donation to keep for your records.

QCDs are a win-win. They allow you to donate to your favorite charity, satisfy your RMD and keep your taxes lower.