By Michelle Lovely, CFRE, Senior Vice President of Development and Donor Services
Starting in 2024, the maximum qualified charitable distribution limit from a traditional individual retirement account has increased from $100,000 to $105,000 per individual ($210,000 for married couples). Why is this important? QCDs are an ideal way for charitable individuals with traditional IRAs to avoid paying state and federal taxes on the dollars they distribute from their IRAs to nonprofits.
For your charitable clients who are of an age when they must take an annual, required minimum distribution, QCDs are a great way for them to support the causes they care about and reduce their tax burden. However, did you know that clients who are age 70 ½ or older should consider using QCDs for all of their charitable giving, regardless of whether or not they must take an RMD? Because QCDs are excluded from income, your clients will have a lower adjusted gross income when utilizing this option, no matter the size of the donation. AGI is a key factor in the calculation of a variety of tax deductions and credits, such as the taxability of Social Security benefits and the cost of Medicare premiums. Thus, QCDs are more advantageous than standard charitable contribution deductions as they can yield additional tax savings.
Another tip we often recommend to donors is to make their QCDs for the entire annual amount they normally give to charity, not just what is required if they must take an RMD. Many individuals limit their QCDs to the amount their advisors tell them is required in a particular year to satisfy their RMD. However, you may want to ask your clients if the RMD amount covers all of the charitable gifts they typically give in one year. If not, encourage them to increase the amount of the QCD to cover their charitable giving, thus reserving after-tax dollars in their checking accounts that they would have used for their charitable giving.
Another benefit to your clients in using their IRA assets to donate to charity now is that they are drawing down their IRA while they are still living and saving other assets to pass on to their heirs. The remainder of their IRA is the highest taxable asset they can pass on to heirs because they will have to pay income taxes on these assets. It’s more advantageous to use their IRA assets for charitable giving during their lifetime and instead pass on assets that have already been taxed or receive a step up in basis upon death to their loved ones. This is particularly beneficial since the elimination of the stretch IRA provision, as IRAs now must be distributed within 10 years of the original account holder’s death, resulting in higher tax liability for your clients’ heirs upon receiving their annual distributions.
The Dayton Foundation offers several options for your clients who wish to take advantage of the QCD. Our most popular solution is the IRA-Designated Fund, which allows your client to process one QCD to The Dayton Foundation then designate which charities to support, the grant amounts and when your client would like the grants distributed. We take care of the rest! Transfers also may be made to create a Scholarship Fund, a Field-of-Interest Fund or an unrestricted Community Impact Endowment Fund. Please note that there are IRS exceptions to where QCDs can be received. Transfers may not be made to a Dayton Foundation supporting organization, private foundation or Donor-Advised Fund, which includes a Charitable Checking Account.SM
If you are interested in learning more about the increase in IRA QCD limits and how we can help you help your clients maximize their charitable giving dollars, please contact me, Nakia Lipscomb or Marianne Requarth at (937) 222-0410.