Year-End Gifting: Using Your IRA to Make Gifts to Charity

If you are at least 70 ½ years old and you have a traditional IRA, you can donate up to $105,000 directly from your IRA account to charity. This direct transfer, called a Qualified Charitable Distribution (QCD), avoids having to recognize the assets transferred to the charity in your gross income on your tax return.

Direct IRA QCD’s to charities are not tax deductible as donations, but correspondingly, they are not treated as income received by you that could trigger higher income taxes and other negative consequences (ex., reduction in Social Security benefits). Generally, when you take an IRA distribution and make an equivalent gift to charity, the distribution is taxable income to you and you receive a charitable deduction for the gift. The charitable deduction you receive may not totally offset the taxes you must pay for receiving the IRA distribution. The IRA QCD would provide you with better income tax results.

To use the IRA QCD, you must be at least 70 ½ years of age and you must direct your IRA custodian to make the contribution directly to the charity, which includes directing the IRA custodian to send you a check made payable to the charity, which you would send to the charity prior to year-end. The charity must be a “qualified” charity. Most public charities, including unrestricted funds and field-of-interest funds held at community foundations (such as the New York Community Trust), are qualified charities, and certain contributions to private foundations and other charities will also be treated as qualified. The amount which may be excluded from income when using an IRA QCD is limited to $105,000 per year. For purposes of your annual required minimum distribution (RMD), the IRA QCD can be used to satisfy a portion or all of your RMD.

The IRA QCD is a beneficial way of making substantial charitable contributions during your lifetime, but the transfer must be completed prior to December 31st of the year for which you want to make the QCD. If you are over age 70 ½ and are charitably inclined, it makes sense to discuss with your advisors whether an IRA QCD is appropriate to satisfy some or all of your charitable wishes.

Note, also, that naming a charity as the designated beneficiary of your IRA or retirement plan at your death is a tax-efficient way to carry out your charitable wishes. While individual beneficiaries must pay income taxes on distributions they receive (other than distributions from Roth IRAs), such distributions to charity will be income tax free, allowing more of your retirement dollars to go to charity.

This article appeared in the November 2024 issue of Stroll Loyd Harbor.