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 limits a couple’s state and local tax deduction to $10,000.  The impact of the reform will greatly reduce the number of filers that will be able to itemize their deductions for federal income tax purposes, preventing them from deducting their charitable contributions.    

Here’s an example: To support their favorite charity, see what Lois, 71, and Walter Smith, 73, are doing. To save on taxes this year they will opt for the higher standard deduction—$27,000 for married couples, which includes a standard deduction of $24,400 and $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.

One alternative that affected taxpayers may have is to support their charities through qualified charitable distributions. Taxpayers age 70 ½ or older can transfer up to $100,000 annually ($200,000 for married couples filing a joint return) from their IRA accounts directly to charity without first having to recognize the distribution as income.  This is called a Qualified Charitable Deduction (QCD) and can reduce tax liability.

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

This is how to report the amount sent to the charity so that money isn’t included in your adjusted gross income:  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.  You 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, for instance, that line would be zero. Then write “QCD” next to that line.

REMEMBER: Make 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.

Note that the tax law does not allow QCDs to fund Donor Advised Funds, Private Foundations and supporting organizations.

Please consult your tax advisor to help minimize your taxes and discuss if a QCD is right for you.

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

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