Why You Should Consider Sending Your RMDs Straight to a Charity

Preston Rosamond |

You’ve done well in life, and you’re looking to give back. The required minimum distribution (RMD) you take from your traditional IRA can be used for something other than expenses—but what should you do with those funds? 

If you want to help organizations and charities that are near and dear to you, consider sending your RMDs straight to a charity, instead of transferring the money into your bank account. This is called a qualified charitable distribution (QCD).

Let’s take a look at the requirements to turn your RMD into a QCD, and how to know if the charity you choose is eligible.

Benefits of Making a Qualified Charitable Distribution

While cutting out yourself as a middle man saves you a lot of time and administration, that’s not where the greatest benefit of a QCD lies. The greatest benefit is actually financial. You can save a lot of money on taxes by sending your RMD directly to a charity instead of taking it for yourself first. 

When you make a QCD, it is excluded from your taxable income because the amount you donate never shows up on your tax return. This leaves you with a lower taxable income and, therefore, a lower tax bill. And you don’t even have to itemize your deductions to get this tax break. 

Are You Eligible to Make a Qualified Charitable Distribution?

Not all retirement accounts are eligible to use the funds as a QCD. It has to be an IRA that is a traditional, rollover, inherited, inactive SEP, or inactive SIMPLE plan. A SEP or SIMPLE is considered inactive if no employer contribution has been made during the plan year that ends during the tax year the charitable contribution is made. 

In addition to having the right kind of account, these other requirements must be met:

  • You must be age 70½ or older.
  • To count toward the RMD for the year, the funds must come out of the IRA account by the RMD deadline, which is usually December 31. Excess donations cannot count toward future-year RMDs.
  • QCDs cannot be greater than the amount that would otherwise be taxed as ordinary income (excluding non-deductible contributions).
  • Total QCDs cannot exceed $100,000 per calendar year per taxpayer, regardless of the number of charities donated to.
  • Funds must be distributed directly to the charity. If you take a distribution and then give it to charity, it does not count as a QCD.

Is Your Charity Eligible to Receive a Qualified Charitable Distribution?

After establishing your own eligibility, you need to make sure your charity is also eligible to receive a QCD. First, it must be a 501(c)(3) organization that is eligible to receive tax-deductible contributions. 

On top of that, there are certain types of organizations that are not eligible to receive QCDs. They are:

  • Private foundations
  • Supporting organizations (charities that only exist to support other exempt organizations, usually public charities)
  • Donor-advised funds managed by public charities on behalf of individuals, families, or organizations

Work With a Professional

Navigating the intricacies of QCDs involves meeting specific criteria and adhering to established rules. It’s prudent to collaborate with a seasoned financial professional to seamlessly execute your QCD. If you’re eager to delve deeper into the world of qualified charitable distributions, The Rosamond Financial Group is ready to assist.

Take the first step by scheduling an introductory phone call. Contact my office at 830-798-9400 or email solutions@rosamondfinancialgroup.com. 

About Preston

Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.