Before we start talking about qualified charitable distribution, it is important to understand what is a required minimum distribution, how everything is connected, and how you can help the causes you care about the most by saving money on your taxes.
What Is A Required Minimum Distribution
A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan by owners and qualified retirement plan participants of retirement age. This statement means that even if you are a business owner, or you are still working, the IRS requires that you make a required minimum distribution once you turn 72 years old.
It should be noted that while an account holder must withdraw the required minimum distribution amount, they can also withdraw above that amount. You may be wondering, “what if you are over 72 years old and prefer to don’t make any withdrawals from your RMD?” Well, you will be penalized by the IRS if you do not begin making the required minimum distributions. In particular, the amount not withdrawn is taxed at 50%.
So what if you have more than enough money and don’t really need to take a distribution but want to avoid being taxed the 50%? The answer is simple. By making a Qualified Charitable Distribution (QCD) you can avoid paying the additional tax to the IRS.
Everything You Need To Know About Qualified Charitable Distribution (QCD)
A QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity. Qualified Charitable Distributions can be counted toward satisfying your required minimum distributions (RMDs) for the year. In addition, because the gift goes directly to the charity without passing through your hands, the dollar amount of the gift may be excluded from your taxable income up to a maximum of $100,000 annually, with some exceptions. Please consult your tax advisor for information regarding your specific exceptions.
There are several benefits to making a Qualified Charitable Distributions (QCD):
- The donor does not have to take the funds out of the IRA as income and thus does not have to pay income taxes on the distribution.
- The QCD reduces the donor’s taxable income, potentially saving the donor money on their taxes.
- The donation counts toward the donor’s annual charitable giving limit, allowing them to make a larger gift than they could if they donated other assets.
- The donation can be made in addition to other charitable donations that the donor makes during the year.
- The donor is can support Believe in Me with a charitable gift right away.
Supporting Marginalized Kids Through QCD
It is important to highlight there are charities that don’t qualify for QCDs, like private foundations and donor-advised funds. Thankfully, Believe in Me is an eligible charity as we are registered as a 501 ©( c)(3) organization and we are eligible to receive tax-deductible contributions.
Suppose you consult with your tax advisor and decide that a Qualified Charitable Distribution is the best decision to distribute your RMD. In that case, you will have the option of designating it for a specific Believe in Me pillar area, such as Education, Foster Care & Adoption, Enrichments, Wraparound Services, Transitional Living, or supporting the mission in general. Whichever service area you choose, you can rest assured that you are providing valuable support for our mission by helping every kid develop the self-confidence they need to succeed.