Required Minimum Distributions
A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional Individual Retirement Account (IRA), or a Simplified Employee Pension plan. All or a portion of an RMD can be donated directly to charity, and is commonly known as a Qualified Charitable Distribution (QCD). Normally, distributions from a traditional IRA are taxable when received. With a QCD, however, these distributions become tax-free as long as they are paid directly from the IRA to an eligible charitable organization which can be done electronically, directly to the charity, or by check payable to the charity.
RMDs and QCDs represent the largest source of gifts to nonprofits and is growing every year. The guidelines include:
- The retirement account owner much be age 70 ½ or older.
- The annual QCD limit is $100K per account owner (although the limit can exceed the annual required minimum distribution.
- For a married couple, if both spouses are age 70 ½ or over and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year.
- Donations must go directly from the IRA to the nonprofit.
- QCDs only apply to taxable distributions.
- Making tax-deductible IRA contributions can reduce your deduction for qualified charitable distributions when both are made in the same tax year.
- RMD and QCD gifts must come from IRAs and not 401k or 403b funds. Fortunately, however, donors may transfer 401k and 403b funds to an IRA and then make RMD or QCD gifts accordingly.
- Donors interested in looking at these excellent options for making gifts to FFI should simply call their account managers.