Q: Can I use my IRA required distribution as a charitable donation?
Guest Adviser John Sirianni
Senior Vice President/
Sirianni Financial Group
Stifel, Nicolaus & Company
Eau Claire, Wisconsin
A: Many savers have succeeded financially by funding a retirement plan, and have taken advantage of the ability to defer income taxes until retirement. Eventually, however, these savers are required by federal tax law to withdraw cash or assets from these accounts even if they don't need the money for annual living expenses. This withdrawal is called a Required Minimum Distribution, or RMD.
IRA account holders who are at the age at which they must take a taxable RMD each year got some great news earlier this year that may help to reduce their annual income tax liability.
The Pension Protection Act of 2006 allowed certain IRA holders the opportunity to donate assets in their IRA to qualified charitable organizations. This benefit was slated to expire on December 31, 2011. However, when President Obama signed the American Taxpayer Relief Act of 2012 earlier this year, the Qualified Charitable Distribution (QCD) provision was extended through December 31, 2013.
Who might benefit from the QCD?
IRA owners who are age 70 ½ or older and plan to make gifts to a qualified charitable organization may qualify to donate assets up to $100,000 from their IRA to the charity. This QCD counts toward the taxpayer's RMD. The distribution (if done correctly) is tax-free, is not included in ordinary income, and removes assets from the IRA holder's taxable estate.
Because the QCD is made from pre-tax dollars, this relatively simple gifting method helps the donor make an even larger impact with their favorite causes. You could, alternatively, simply name the charity as beneficiary of your IRA account, but this would not help to reduce your taxable income in the current year.
Estate planning in general (and IRA distribution strategies specifically) can be complicated, so seek the aid of a competent tax adviser or tax attorney for guidance.
Qualified Charitable Distribution
If you are over 70 ½, own a traditional IRA and don't need your RMD for annual living expenses, have heirs and loved ones who are well provided for and have estate plans that include donations to one or more charities you want to help, discuss the possible tax benefits of a Qualified Charitable Distribution with your advisers or visit
www.marshfieldclinic.org/giftplanning for more information.
For additional information on making a planned gift to Marshfield Clinic, please contact:
Karen Piel, J.D., C.P.A., CFRE
Planned Giving Officer