IRA Donations

Do you know about the tax savings in an IRA Charitable Rollover?
A Tax-Free Option for Donors 70 ½ or older

The 2018 tax reform caps a couple’s state and local tax deduction at $10,000. This makes it less likely that many of these filers will itemize. For singles 65 and older, the standard deduction is $13,600.

Here is an example: To save on taxes and to support their favorite charity, Lois, 71, and Walter Smith, 73, will opt for the higher standard deduction—$26,600 for married couples, which includes $1,300 extra per person for married filers age 65 and older. But that means the Smiths won’t get a financial benefit from their donations.

There is a solution:  taxpayers age 70 ½ or older can transfer up to $100,000 annually from their IRA accounts directly to charity without first having to recognize the distribution as income. See https://www.irs.gov/retirement-plans/ira-deduction-limits.

The amount a taxpayer is required to take as the Required Minimum Deduction or RMD varies based on the value of the IRA. 

The amount you give to charity is called a Qualified Charitable Deduction or QCD.

Funds must be transferred directly from the IRA to an eligible charity by the IRA trustee in order to qualify for the tax break. If you withdraw the money from your IRA and later donate it, it won’t qualify as a tax-free QCD.

Your 1099-R received from your IRA administrator reports only the amount of money that was distributed from your IRA without specifying whether it was a withdrawal or a tax-free transfer to a charity as a QCD.

This is how to report the amount sent to the charity so that money isn’t included in your adjusted gross income:

Report the distribution on line 15a of your Form 1040 as a gross distribution. Subtract the amount of your QCDs and put the remainder on line 15b—that is the taxable amount. If you donate your entire RMD, the amount on line 15b would be zero. Then write “QCD” next to that line.

REMEMBER: Do the QCD before you take out your full Required Minimum Deduction (RMD) or it won’t count toward your RMD because you already satisfied it. Be careful to report your QCD correctly on your tax return. Your IRA custodian will send you a 1099-R form, but it won’t specifically identify the QCD.

Important to Note: The law does not allow QCDs to fund Donor Advised Funds.

For more information, contact the Development Office at 646-275-0086 or email: ssbar@fallenheorsfund.org

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