Charitable Giving From Retirement Distributions

Terri Almacy, CPA

We all know how good it feels to make a difference to charitable organizations. It’s even nicer when you receive a tax benefit from being charitably minded.

Due to changes in the tax laws in 2018, many individuals who were previously itemizing deductions on their tax return (including donations to charity) were no longer eligible for itemizing and found that they were better off tax-wise with taking the newly increased Standard Deduction.

For those of you who have reached the age to take your Required Minimum Distributions from retirement plans (age 70 and ½ if you were born before or on June 30, 1949, and age 72 if you were born after June 30, 1949) you can take advantage of making charitable donations directly from your retirement distribution.

Required Minimum Distributions (RMDs) are a calculated amount that must be withdrawn each year from any retirement accounts that have been moved into an Individual Retirement Account (IRA). The amount of your distribution is a factor of your age and the balance in your IRA account at the end of the preceding year.

These distributions do not include other retirement plan distributions such as Pension Plans, Annuities or ROTH IRAs. All distributions from you IRA accounts are included in your taxable income each year.

You may choose to have charitable donations made directly from your IRA account. These contributions must be made to a “Qualified Charity” also known as a 501(c)(3) tax-exempt organization.

Charities that meet the 501(c)(3) requirement include churches, educational institutions, and many non-profit organizations including The Women’s Giving Circle of Frederick County via contributions made to the Community Foundation of Frederick County.

If you are currently taking RMDs from your IRA accounts, you can benefit from making your charitable contributions directly from these distributions by reducing your taxable income BEFORE itemized or standard deductions. Charitable donations up to $100,000 per year can be taken this way. If you are receiving Social Security benefits, doing this will directly lower your other sources of income making less of your Social Security income subject to taxation.

Speak with your advisor or broker of record for your IRA account to find out how you can set up these donations before the end of 2022 and take advantage of this tax deduction