Most of our clients have at least a portion of their savings in IRAs. Those that do not often have savings in a 401k, which will likely be converted to an IRA upon retirement.  Both 401k and IRA plans allow a person to put money away tax free.  However, when money is withdrawn from the plan (referred to as a distribution) it is taxed as income.  For that reason, people typically put off taking distributions as long as possible.

In order to make sure that distributions are not put off for too long, the IRS requires distributions upon reaching the age of 70-1/2. These mandatory distributions are referred to as required minimum distributions (“RMDs”). A relatively new option for RMDs is the qualified charitable distribution.  Made permanent in 2015, the qualified charitable distribution allows the client to direct distributions directly from their IRA to a charity.

By making a qualified charitable distribution to a charity, the charity benefits, but the taxpayer does too. The distribution goes to the charity without any of the tax consequences to the person making the contribution.  Remember, that if the person making the distribution is 70-1/2, they would be required to make an RMD.  However, the IRS allows the qualified charitable distribution to be made in satisfaction of the RMD.  This means no income tax on the RMD to the person making the distribution.  While there is no deduction allowed for the contribution, this is offset by reducing the RMD income.

If you are interested in making a charitable contribution, and using the RMD from your IRA, please contact us to discuss. The deadline for 2017 is December 31st, so there is still time to make a contribution, especially if you have not yet taken your RMD.  If you have already taken your RMD, this is a great time to begin considering next year’s RMD, and how to use it effectively with your charitable intentions.