Benefits of Donating to Charity Using Your Retirement Assets

By Kevin Reardon, CFP®

How can you use your retirement assets to lower your taxes and make a difference in the world?

Make a tax-free Qualified Charitable Distribution (QCD) gift from your IRA to the charity(ies) of your choosing. This will lower your taxable income AND provide support to organizations that are making the world a better place.  Because the gift is tax-free, your charitable dollars go further than if you wrote a check from your bank account. This, my friends, is the ultimate win-win. You benefit financially from this strategy. The causes the charities support benefit from this strategy. As an extra bonus, giving to charity makes you feel good, which has a positive effect on your own life.

Anyone with an IRA who is over the age of 70 ½ has the ability to make a tax-free gift to a qualified charity.  For IRA owners over age 72, a QCD counts toward your required minimum distribution without incurring a tax liability!

How do you make this happen?

To do this properly, the QCD must come directly from your retirement account and be made payable to the charity.  A QCD typically requires you to sign a Distribution Form.  Requesting a normal distribution from your retirement assets, depositing the funds into your own account, and giving the proceeds to charity is not a QCD.  You could lose the tax benefits associated with a charitable donation in that case.  Note:  next year at tax time, be sure to tell your tax preparer that you made a QCD from your IRA to get the maximum tax benefit.

Is there a limit to how much can be given annually?

The maximum QCD is $100,000 per IRA owner per year.  If spouses each have IRAs in excess of $100,000, they could each give up to $100,000 from their IRA each year.  It’s always best to consult with your financial advisor to make sure you are meeting all the QCD requirements and that your charity qualifies as a QCD recipient.

If you are looking to leave a legacy and make a difference, consider a Qualified Charitable Distribution to the charities of your choosing.