IRA QCD | westminsterschool

Retirement plan assets provide financial security

As a result of the increased standard deduction, in recent years most taxpayers no longer itemize their income tax deductions and, therefore, cannot take advantage of the charitable deduction. However, a qualified charitable distribution (QCD, also referred to as the IRA Charitable Rollover) can provide the tax savings of a charitable deduction even if you don’t itemize.

The IRA qualified charitable distribution, or QCD, is a great way to make a tax-free gift to Westminster School. Even better, if you have a required minimum distribution (RMD), your QCD gift will reduce the taxable amount you are required to withdraw.

When you make a IRA QCD, you won’t need to include the transferred funds in your income for that year and therefore will not pay any tax on them. If you were to withdraw the funds yourself and then make a gift to us, you would have to include the withdrawal in your income.

Another great feature of a charitable IRA QCD is that it counts toward the amount you are required to withdraw from your IRA for the year—your “required minimum distribution.” If you do not need these funds for your own use, you can meet your required distribution by making gifts to Westminster School and your other favorite charities and avoid paying income tax on these withdrawals.

The benefits to you:

Your QCD withdrawal is not included in your income, so you won’t have to pay any taxes on that income.
Your QCD withdrawal satisfies some or all of the required minimum distribution in the year of the gift.
The charitable IRA QCD may save you from owing higher taxes on Social Security benefits and paying higher Medicare premiums.
You have the satisfaction of providing immediate support to Westminster School.

Simply visit your IRA administrator’s website for a QCD (qualified charitable distribution) form.

IRA QCD Rules

Donor must be 70½. The IRA owner must actually be age 70½ or older on the date of distribution.

If you are age 73 or older and must take your RMD. A QCD can satisfy your RMD without increasing your income taxes.

Annual charitable rollover limited to no more than $105,000 per individual, per year. A married couple with two different IRA accounts can each rollover $105,000.

Gifts may only come from the donor’s Traditional Individual Retirement Account. 401(k), 403(b), SEP IRA accounts, and other retirement accounts do not qualify.

Charitable IRA QCDs must be to a public charity. Rollovers may not go to a private foundation, nor may a charitable IRA QCD go to a charitable supporting organization or a donor-advised fund.

The IRA donor may not receive any “quid pro quo” benefits for the donation, such as gala tickets.

The IRA administrator must make the charitable IRA QCD directly to charity. The donor should submit a distribution form to the IRA custodian, requesting that the check be made payable directly to charity. The check can be sent directly to charity or to the IRA owner to be forwarded along to the charity.

While Social Security is the financial foundation for most retirees, your monthly benefit payments may be insufficient to maintain your desired lifestyle in retirement. If so, you are likely planning to use your retirement savings to close the gap between your Social Security payments and your medical and living expenses. What about the assets that remain in these accounts at your passing? With savvy estate planning, you can use your retirement accounts to support Westminster, while at the same time minimizing the burdensome taxes your loved ones would otherwise pay.

Taxes on retirement accounts

There are many types of retirement accounts - IRA, 401(k), 403(b), Keogh, and others. What most have in common is that contributions to these plans were tax-free so those accounts have never been subject to income taxes (The exception is the Roth IRA and other Roth retirement accounts.) The IRS ultimately must be paid, however. This happens when you withdraw funds from these accounts. Likewise, loved ones who inherit these accounts are required to pay taxes when they withdraw funds from them. Should they withdraw all assets in one tax year the income taxes due can result in much of the account assets being eaten up in taxes.

Minimizing taxes due from loved ones

You have the option, and are encouraged, to name beneficiaries for any assets remaining in your retirement accounts at your passing. If you have named charities to receive

gifts from your will or trust, a simple restructuring of your estate plan can result in a potentially significant tax savings for your loved ones.

Step 1: Remove the charitable gifts from your will or trust that you will make from your retirement plans instead. This will allow more assets to pass to loved ones free of income taxes.

Step 2: Name your favorite charities as beneficiaries of all or a portion of your retirement accounts. Westminster is tax exempt, which means we will pay no income taxes on the gifts we receive from your accounts. Even if you have named loved ones to receive a portion of these accounts, you will have minimized the tax liability to heirs.

The IRA charitable rollover

If you are 70 ½ or older, consider this gift from your traditional IRA account [401(k) and 403(b) accounts are not eligible]. Your gift must be transferred directly from your IRA custodian to Westminster. This IRA charitable rollover, also known as a Qualified Charitable Distribution (QCD), will not be included in your taxable income and will offer all of the tax benefits of an itemized deduction even if you no longer itemize your deductions. If you are age 73 or older and must take your required minimum distribution (RMD), a QCD can satisfy your RMD without increasing your taxable income. You can give up to $105,000 per year this way.