In 2016, Congress made permanent a temporary provision started in 2006, which opened up a wealth of resources to be used for charitable purposes. Widely described as a Charitable IRA Rollover, and more technically as a Qualified Charitable Distribution (QCD), the law allowed owners of traditional IRAs who had reached the age of 70 ½ to make charitable gifts, up to $100,000 annually, directly to qualified charities.
Not only was this gift convenient to make, the owner simply had to instruct the administrator of the IRA to send a check to a charity or charities of choice, it was also came with tax benefits. Although no charitable deduction was allowed, the tax savings came from not including the distribution in gross income as reported on IRS Form 1040. This allowed both itemizers and non-itemizers to save taxes. In addition, the gift counted toward the required minimum distribution (RMD) for that particular year.
Recent Change in the Required Minimum Distribution
In 2020, the SECURE ACT raised the age when you must take required minimum distributions from most retirement plan accounts to 72. However, the Act still allows individuals to make direct gifts via qualified charitable distributions (QCD) at age 70 ½ from a traditional IRA account without incurring federal income tax on the withdrawal. For many people, the Charitable IRA Rollover or QCD has become the preferred method by which they support their favorite charities.
Things to Know About the Charitable IRA Rollover
- You must be at least 70 ½ to take advantage of the Charitable IRA Rollover.
- Distributions must come from a traditional IRA. Retirements plans such as a 401(k) or 403(b) do not qualify. If you want to take advantage of the Charitable IRA Rollover, you can rollover funds from these plans into a traditional IRA and then make your Charitable IRA Rollover gift.
- Gifts must be made to qualified charities. Donor advised funds do not qualify.
- The gift must be outright to the charity. You cannot establish a charitable gift annuity or charitable remainder trust through a Charitable IRA Rollover.
- The gift must go directly to charity. You cannot take a distribution and then make a gift of the proceeds.
- You may restrict your gift to a particular program or specific purpose at the charity you give to.
- The annual limit to how much you can give is $100,000. If you are married and your spouse has an IRA, he/she may also give up to $100,000.
Who Should Consider a Charitable IRA Rollover
- If you do not need the funds from your IRA, then a Charitable IRA Rollover provides a convenient way to support the charities you care about.
- You want to avoid counting the IRA distribution in your gross income.
- If you do not itemize, the Charitable IRA Rollover is a way to receive tax benefits from your charitable giving.
This information is not intended as tax, legal or financial advice. Consult your financial advisor for information specific to your situation.
About the Author
Since 2000, Randy has served as Director of Planned Giving for Southwestern Medical Foundation and UT Southwestern Medical Center. He works with donors to suggest bequest language to share with attorneys, establish charitable gift annuities and charitable remainder trusts, utilize beneficiary designations for retirement plan accounts and explore gifts of other non-cash assets like real estate and life insurance. After receiving a Masters of Divinity degree from Vanderbilt University, Randy began a career in development, working in higher education, the arts and in academic medicine. He received the Chartered Advisor in Philanthropy designation (CAP) through the American College of Financial Services.
To contact Randy Daugherty, please call (214) 648-3069 or email him at randal.daugherty@utsouthwestern.edu.
Learn more about the Charitable IRA Rollover.
Read an inspiring story about Marsha and Michael Baylor, members of The Heritage Society who have made multiple IRA rollover gifts.