Charitable IRA Rollover FAQsby David Troutman • January 1, 2020 Share:
Charitable IRA Rollovers, also known as Qualified Charitable Distributions (QCDs), are tax-savvy ways for many people aged 70 ½ or older to make charitable gifts. We have compiled a list of frequently asked questions here, but please also feel free to contact the Office of Gift Planning at 765-361-6135 or 765-361-6048 or email to email@example.com if we can assist you.
WHAT IS A CHARITABLE IRA ROLLOVER?
A charitable IRA Rollover, also known as a QCD, is a gift from an Individual Retirement Account (IRA) to a qualifying charitable organization, such as Wabash College, sent directly from the IRA to the charity.
IS A “QUALIFIED CHARITABLE DISTRIBUTION (QCD)” THE SAME THING AS A CHARITABLE IRA ROLLOVER?
Yes. A QCD is the language used in the tax code, but they are more often referred to as Charitable IRA Rollovers.
WHAT IS THE MINIMUM AGE FOR MAKING A CHARITABLE IRA ROLLOVER GIFT?
You must turn 70 ½ prior to requesting the distribution. The SECURE ACT enacted in December 2019 and effective January 1, 2020, did not change the minimum age for these gifts.
HOW DOES THE SECURE ACT AFFECT CHARITABLE IRA GIFTS?
The SECURE ACT raised the age at which individuals must start taking Required Minimum Distributions (RMD) to age 72, unless you were 70 ½ before January 1, 2020. Individuals can still make a Charitable IRA Rollover gift at age 70 ½ and may still find it beneficial to give with a Charitable IRA Rollover even if they are not yet required to take an RMD (see TAX TREATMENT below). Under the SECURE ACT, it is possible to make contributions to your IRA after the age of 70 ½ and give a Charitable Rollover gift, however, you should consult with your tax or financial advisor with regard to the optimal way to structure those contributions and gifts.
For more information on the SECURE ACT, please visit this link Senate Passes SECURE Act To Encourage Saving For Retirement.
For instructions to provide your financial institution in order to make a Charitable IRA Rollover, please visit the link IRA Required Minimum Distributions By December 31.
WHEN AM I REQUIRED TO START RMDs?
If you turned 70 ½ prior to January 1st, 2020, the mandate for RMDs continues, but if you turn 70 ½ on or after January 1st, 2020, then your new required beginning date for when you must take RMDs is now age 72. You may still make a Charitable Rollover gift at age 70 ½ even if you are not yet required to take your RMD. (See SECURE ACT above).
WHAT IS THE TAX TREATMENT FOR CHARITABLE IRA ROLLOVERS?
There is no income tax deduction for a Charitable IRA Rollover. Instead, the funds are never included in the donor’s income to begin with. Accordingly, ordinary income tax, which would otherwise be due on withdrawals from an IRA, is not assessed on the gift. For people who do not itemize their taxes, this is more beneficial than a tax deduction.
If the donor is aged 72 or older and required to take an RMD, the gift will satisfy all or a portion of an individual’s RMD up to $100,000. If the donor is between the age of 70 ½ and 72, an RMD is not required, but the gift still avoids ordinary income tax and helps to reduce the amount of RMD which will be required once the donor turns 72 by decreasing the value of the IRA account.
NOTE: If you choose to wait until you turn 72 to begin RMDs, and if the financial markets continue to perform favorably between now and then, your account balances will likely be larger, which translates to larger RMDs and hence, a larger tax bite at the time of distributions. You may find it advantageous to begin making charitable IRA rollover gifts prior to taking your RMDs so that when it’s time to take RMDs, you may possibly lower your tax liability. Please consult your tax advisor regarding the best charitable and financial strategy for your situation.
WHAT TYPE OF ACKNOWLEDGEMENT SHOULD I EXPECT?
Wabash will send you a written acknowledgment of your gift to thank you and to confirm the amount of your gift and its intended purpose. Because there is no income tax deduction, you will not receive a conventional receipt.
IF I MAKE A CHARITABLE IRA ROLLOVER GIFT, DOES IT AFFECT MY REQUIRED MINIMUM DISTRIBUTION (RMD)?
Yes. The amount distributed to Wabash College will be deducted from your RMD up to $100,000 per tax year.
I HAVE A ROTH IRA, CAN I USE IT FOR A CHARITABLE IRA ROLLOVER?
Roth IRAs are eligible for rollover treatment, however, because distributions from Roth IRAs are not taxed as ordinary income, you may wish to discuss with your financial advisor whether this is the best way for you to give.
I DO NOT HAVE AN IRA, CAN I MAKE A CHARITABLE IRA ROLLOVER FROM ANOTHER RETIREMENT ACCOUNT?
No, transfers must come directly from an IRA. However, if you have retirement assets in a 401(k), 403(b) or other qualified funds, you may be able to roll those funds into an IRA, then use the IRA for charitable giving. Please discuss this with your financial advisor.
WHAT IS THE MINIMUM GIFT SIZE AND IS THERE A MAXIMUM GIFT SIZE?
The minimum gift size depends on the policies of your IRA custodian. The maximum distribution permitted by the IRS is $100,000, per account holder, per year.
ARE THERE RESTRICTIONS ON THE CHARITABLE IRA ROLLOVER?
A rollover cannot be used to make gifts when the donor receives a benefit in return (i.e. to attend a dinner). Also, it is not permissible to use a rollover to fund life-income gifts such as gift annuities and charitable remainder trusts.
HOW DO I INITIATE A CHARITABLE IRA ROLLOVER?
You should start by contacting your IRA custodian. Only custodians of IRAs are permitted to make Charitable Rollovers on behalf of their account holders. If you have check-writing privileges on your IRA, your IRA custodian MUST act on your behalf – checks must be written by your IRA custodian to Wabash College. If you receive a check from your custodian payable to Wabash College, the gift is considered complete when you place your check in the mail addressed to Wabash College.
Please let us know that a Charitable IRA Rollover is being initiated. Occasionally, we receive funds from an IRA custodian without the donor’s name or desired gift designation attached.
ARE THERE SPECIAL FORMS I NEED TO USE?
IRA custodians are becoming very familiar with these types of gifts. Your IRA custodian may have its own form to request the transfer; if not, please visit IRA Charitable Rollover Instructions to find a sample instruction letter to your IRA custodian.
WHEN CAN I INITIATE A REQUEST FOR A DISTRIBUTION TO COUNT TOWARD MY RMD FOR THE CALENDAR YEAR?
You may request a distribution at any time after reaching 70 ½ years of age. For a QCD to count toward your current year's RMD, the funds must come out of your IRA by your RMD deadline, which is generally December 31 each year. However, please begin your transfer by early December to allow ample time for your transfer to be completed and cashed by Wabash College.
CAN MY IRA GIFT SATISFY A PLEDGE OR CREATE AN ENDOWED FUND?
Yes! Payment schedules of various lengths may be established by the donor with a maximum duration of five years.
HOW DO I KNOW IF A CHARITABLE IRA ROLLOVER IS RIGHT FOR ME?
If you are over the age of 70 ½ and have an IRA, the rollover might be right for you if:
- You do not itemize deductions on your income tax return;
- You do not need your RMD;
- Your RMD causes more of your Social Security income to be taxed; or
- You are making charitable contributions at your deduction limit, but want to do more.
I HAVE MORE QUESTIONS, WHOM SHOULD I CONTACT?
Please call the Office of Gift Planning at 765-361-6135 or 765-361-6048 or e-mail us at firstname.lastname@example.org