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Donating From An IRA
Money from an individual retirement account can be donated to LiftUp. What’s more, if you’ve reached the age where you need to take required minimum distributions (RMDs) from your traditional IRAs, you can avoid paying taxes on them by donating that money to charity. That tax break was made permanent in 2015.
You just have to be sure to follow the rules carefully. Here’s the basics of what you need to know:
- Funds from an IRA can be used for charitable donations if done correctly.
- Tax breaks on charitable donations cannot be combined with the tax break on retirement savings.
- The IRS has established rules to make sure qualified charitable distributions are made properly.
How does it work?
Normally, a distribution from a traditional IRA incurs taxes since the account holder didn’t pay taxes on the money when they put it into the IRA. But account holders aged 70½ or older who make a contribution directly from a traditional IRA to a qualified charity can donate up to $100,000 without it being considered a taxable distribution. The deduction effectively lowers the donor’s adjusted gross income (AGI).
To avoid paying taxes on the donation, the donor must follow the IRS rules for qualified charitable distributions (QCDs)—aka, charitable IRA rollovers. Most churches, nonprofit charities, educational organizations, nonprofit hospitals, and medical research organizations are qualified 501(c)3 organizations. The charity will also not pay taxes on the donation.
What is an RMD?
A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age.
In 2020, the age for withdrawing from retirement accounts changed. You must begin withdrawing from a retirement account by April 1 following the year account holders reach age 72 (prior to 2020, the RMD age had been 70½ years old). The retiree must then withdraw the RMD amount each subsequent year based on the current RMD calculation.
For further information on making a charitable donation through your IRA please consult your financial planner or tax professional.
Information provided here is for educational purposes only sourced from Investopedia and does not constitute tax advice.