Living and Giving IRAs for Charitable Contributions

Question: Can I use my IRA required minimum distributions (RMDs) to make charitable contributions?

Answer: Yes, you may use required IRA distributions (RMDs) to benefit a worthy cause and reduce your tax liability at the same time. This is accomplished by taking Qualified Charitable Distributions (QCDs). 

Helping organizations and individuals is a noble and worthy aspiration. With proper planning, these gifts may be more rewarding, both personally and charitable, as you can see the impact of your gifts now rather than waiting until after you’ve passed to make these gifts. QCDs let you help others while you’re living rather than waiting to distribute funds to named beneficiaries at your passing. 

The first quarter of any year is the height of season for charity fundraisers, galas, balls, and fun events promoting charities and philanthropic organizations in our community. This is a great time to learn about QCDs as a planning technique that may be beneficial to the causes that are important to you, while potentially improving the bottom line of your tax return. 

As stated, QCDs are a great way to benefit organizations and are an option that may reduce your tax liability. QCDs involve donating pre-tax dollars before they become taxable income as a required minimum distribution (RMD). Here’s how it works.

Assume that your RMD for this year, which you’re required to take no later than December 31, 2024, is $25,000. If you took a $5,000 cash distribution from your IRA in January and then donated the funds to Charity A, it would not be a QCD. The $5,000 cash distribution would be included in your 2004 gross income (but you may be entitled to a charitable deduction if itemize). If after reading this article, you make a Qualified Charitable Donation (QCD) directly to Charity A for $20,000, you would exclude the $20,000 from your gross income.   

Depending on your RMD amount, you may exclude up to $100,000 (per spouse) in QCDs from your 2024 gross income. The gift cannot be made to a private foundation, donor-advised fund, or supporting organization as described in IRC Section 509(a)(3).  

Transform RMDs into QCDs

Philanthropy is often reward enough, but charity and tax deductions seemingly go hand in hand. As the standard deduction has risen to $14,600  for individuals in 2024 ($29,200 for joint filers, and $21,900 for heads of household), you may want to consider giving strategies that don’t require itemizing on your tax return. A QCD is a great way to carry out your charitable intent that doesn’t require itemizing and also reduces your taxable income.

The required starting age to begin taking distributions from your IRA has increased over the past few years from 70 1/2 to 73. However, the age that you can begin QCDs is still 70 1/2. These RMDs are generally treated as taxable income. Thankfully, the Protecting Americans from Tax Hikes (PATH) Act of 2015 permanently allowed an IRA owner to make QCDs of up to $100,000 directly from their IRA to a charity without getting taxed on the distribution. Basically, you can satisfy your RMD amount without reporting additional income.

But wait, there’s more, it gets better! Another important benefit is that when a QCD is used to satisfy an RMD, that amount is also excluded from tax formulas that could impact multiple categories such as Social Security taxation, Medicare Part B and D premiums, and the Medicare tax on investment income.

Follow the Rules

You must be age 70 1/2 or older at the time of the QCD (but remember, RMDs now begin at age 73). QCDs from ongoing SEPs and SIMPLE IRAs are not permitted.

There is an annual limit. Your QCD cannot exceed $100,000 per tax year, even if your RMD is greater than $100,000. New legislation, the SECURE Act 2.0, indexes this $100,000 limit for inflation now in 2024. 

Only qualified organizations count. The IRA trustee or custodian must make the distribution directly to a qualifying charity (private foundations and donor-advised funds are not eligible). 

A real-time legacy

By donating the RMD to a qualified charity, you can enjoy the satisfaction of knowing you are helping a worthy cause while simultaneously reducing your taxable income. This strategy also helps you live out your values in real time, effectively living your legacy in the here and now.

To learn more, seek guidance from your trusted CERTIFIED FINANCIAL PLANNER™ Practitioner and tax advisors. They’re a good source of information when it comes to living and giving generously. Stay focused and plan accordingly. 

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. The opinions expressed are those of the writer as of  January 21  2043,  but not necessarily those of Raymond James & Associates, and subject to change at any time based on market conditions and other factors. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL Main™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing

certification requirements.” This article was provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com. 

Website: www.raymondjames.com/Darcie.