If you are at least age 70½, would like to make a gift to Arcadia University and don’t need your required minimum distribution for living expenses, the IRS has a tax saving gift for you. The “IRA charitable rollover,” technically known as a Qualified Charitable Distribution or QCD, has become the gift of choice for age appropriate charitably inclined individuals, and especially for taxpayers who no longer itemize deductions now that the standard deduction has been increased.
The Many Benefits of the IRA Charitable Rollover/QCD
Here is what you need to know to take advantage of this giving opportunity. You must be age 70½ or older at the time of your gift and your gift must be paid directly from your IRA administrator to Arcadia. If you have an IRA checkbook, you can write a check to a charity and that will qualify as a QCD. You can make gifts to various charities, but your gifts using the QCD can not exceed $100,000 per year. If you are married and your spouse has an IRA, they can also make gifts not to exceed the $100,000 annual limitation. The gift will not be included in your taxable income, which may reduce your taxes on Social Security income and the cost of your Medicare premiums. Perhaps one of the most significant benefits is that your QCD gifts will count toward your required minimum distribution.
If you no longer itemize your deductions, the QCD provides tax benefits similar to making a charitable gift from taxable income and then taking a corresponding income tax charitable deduction.
Don’t Run Afoul of These Rules
There are, however, some caveats. You cannot take a tax deduction for a QCD gift, because the distribution from your IRA is not being included in your taxable income. You also cannot receive any benefits in exchange for your gift such as tickets to charity events. Any kind of benefit you receive that would reduce the charitable deduction for a non-QCD gift will disqualify the entire QCD gift for its beneficial tax treatment. Also, if you are making the QCD gift in December make sure your IRA administrator withdraws the funds from your IRA account before the end of the year to avoid being penalized for any shortfall for your required minimum distribution. Procrastination could be costly.
Strategies with Other Tax Qualified Retirement Accounts
If you don’t have an IRA account but have other tax qualified accounts such as a 401(k) or 403(b), they can be rolled over into an IRA account. There are technical IRS rules in these situations, so you are strongly encouraged to consult your tax or financial advisor.
Initiating the IRA Charitable Rollover/QCD
You can initiate a QCD gift by sending a letter to your IRA administrator requesting they make a QCD from your IRA account, providing the name and address of Arcadia and the amount of your gift. Many IRA administrators have their own forms that can be submitted — often they can be found on the IRA administrator’s website. It is helpful to send a copy of the request form to Arcadia, so we are aware of the pending gift. Request that your IRA administrator include your name on the check so you can receive the IRS required substantiation letter from Arcadia when the gift is received.
The IRA charitable rollover is growing in popularity. If you qualify and follow the rules, this is an opportunity to support Arcadia while saving taxes.