IRA Charitable Rollover These are a great way to reduce your taxes.
Each year, IRA owners age 72 and older must take a required minimum distribution (RMD). The RMD in nearly all cases is calculated using the Uniform Table. Under the Uniform Table, distributions generally start at age 72 at approximately 3.7% and increase yearly. The RMD must be taken on or before December 31 of each year.
Many IRA owners with significant balances take the RMD during the last quarter of the year. Because many individuals with larger IRAs do not require IRA funds for daily living expenses, delaying an RMD until the end of the year allows for additional tax-free growth in the IRA.
Fortunately, the IRA charitable rollover will qualify to satisfy a donor's RMD. The IRS term for an IRA charitable rollover is a qualified charitable distribution (QCD). IRA custodians may also use "QCD" to refer to this transaction.
There are five donor profiles for IRA rollover gifts. The first is the convenience donors, who find it a very simple and easy method for an end-of-year gift. The second is the generous donor, who wants to give more than the 60% of the AGI limit. The third profile is a major donor who may be a generous individual looking for a favorable opportunity to make a major gift. Fourth, a Social Security recipient may want to reduce taxes with an IRA rollover gift. Finally, a standard deduction donor can also benefit from a QCD.
Social Security Donor
Social Security is subject to two levels of taxation. For donors with income in excess of the first level, 50% of Social Security is taxed. For donors with income in excess of the second level, up to 85% of Social Security income may be subject to tax.
Withdrawing an amount from an IRA may cause income to increase from the 50% tax bracket to the 85% Social Security taxable bracket. Even though the withdrawn amount is given to charity and deducted, there still is increased tax on an IRA distribution to the donor. Thus, by transferring directly to charity, many Social Security recipients will reduce taxable income and save on taxes using the QCD.
Standard Deduction Donor
Many seniors do not have a mortgage, and their medical deductions are less than 7.5% of adjusted gross income. Thus, they use the standard deduction instead of itemizing.
If this donor withdraws $1,000 from his or her IRA and gives it to charity, there is $1,000 of increased income with no offsetting charitable deduction because the standard deduction is taken. Therefore, it is preferable for all donors who take a standard deduction to make IRA rollover gifts directly to the charity to avoid the additional taxable income.
An IRA charitable rollover offers many benefits to different types of donors. QCDs make it simple and easy to carry out a donor' philanthropic goals. The additional tax advantages of the IRA charitable rollovers make this a very attractive gifting opportunity for donors.
Life Insurance These involve a written document called a policy, which is a contract. The policy will provide a payout to the policy beneficiaries after the person whose life is insured passes away.
Charitable Remainder Trust These are an excellent way to benefit yourself, your spouse, or other family members and provide financial support to your favorite charitable causes. A testamentary CRT
through your will or living trust can provide income for your family. After all, payments are made to the family, the remaining trust assets will be given to charity. You may also consider funding a lifetime CRT. You will receive a charitable income tax deduction and trust income payouts.
Charitable Gift Annuity This is a contract involving you and a charity. You make a gift to the charity in exchange for fixed payments for the life of one or two persons. After all, payments are completed, the charity receives a gift. A gift annuity funded during life provides you with a charitable income tax deduction and partly tax-free income.
Donor-Advised Funds Many families find that a donor-advised fund (DAF) is a simple and efficient way to support the causes they care about. Many parents find that a DAF is a valuable tool that can encourage philanthropy by allowing their children to recommend future gifts to charity from the DAF. With a DAF, you can time your gifts to favorite charities. You receive an income tax deduction and may decide later on your transfers to favorite charities.
Charitable Endowments You can use your will or trust to create an endowed fund after you pass away. We will invest your gift and use the annual income to support your chosen area of our work. Because we are not spending the principal amount of your gift, an endowed gift can benefit us for many years, enabling you to
leave a lasting legacy.
