Can my Traditional IRA make a donation to my church to satisfy the RMD?
Yes, and we can take this even further.
- This method of making a charitable contribution to satisfy your Required Minimum Distribution (RMD) may be used by any type of IRA; Traditional, SEP, Inherited, SIMPLE, even a Roth. (However, we will touch on this later.)
- And not just to your church, the RMD can be made to almost any qualified charity. Remember, the charity must be a qualified 501(c)(3) organization.
This method may not be used for donor advisor organizations, private foundations, and charity supporting organizations.
Why is this important?
Why might a person choose to have their Required Minimum Distribution sent directly to the charity? Using this method, the account owner never receives the distribution. Hence, the account owner never reports the RMD amount as income. To accomplish this, the distribution must be made directly to the qualified charity.
- You must be at least age 70½
- The direct payment may not exceed $100,000 per year/per person. If you file jointly and both parties have IRAs that qualify, each person may donate up to $100,000.
- The contribution must be completed by December 31st of the year the RMD is required.
- The contribution must be for the current year. No carryback or carry forward of the amount.
- The charity must acknowledge the gift using its standard gift receipt acknowledgment process.
- The contribution must be made first in the calendar year, before any other distributions are taken.
- I do not itemize my deductions on my tax return. Instead, I take the standard deduction. Is there still a benefit to using this method of making a charitable contribution?
- Yes, because by sending your RMD amount directly to the charity the RMD amount will never show up on the income line of your Form 1040.
- I understand this is meaningful if I have a Traditional IRA however, I have a Roth IRA, is this still a good idea for me?
- Distributions from a Roth IRA are already not included in taxable income so the financial benefit to you will be smaller. In the case of a Roth IRA holder, the answer will depend on their desire to donate to a charity. However, there are other benefits to a lower income line on your Form 1040. For this, please seek input from a CPA or other qualified tax advisor for guidance.
- This year, my RMD is $62,000, I would like to donate $100,000 to my Church. How do I do that?
- Your IRA administrator can send the amount of the RMD to your Church ($62,000) and $38,000 directly to you to use as you see fit. The direct payment to the charity may not exceed the amount of the RMD.
- If I direct my IRA to send my RMD directly to my favorite qualifying charity, do I get to take the charitable deduction if I itemize my deductions?
- The benefit is that you recorded no income from the distribution.
As you can see, making a qualified charitable donation has many benefits. Besides not reporting the income, your contribution will make a great impact and change lives. For further details on this topic see IRS Section 404 d (8).
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