They say charity begins at home, but your charitable donations may go further if they never wind up at home — or in your bank account. That’s because, if you’re a senior 70 1/2 or older, you could get a great tax break by donating your IRA’s minimum required distribution (MRD) directly to a charitable nonprofit organization. Depending on your financial circumstances, this could be a smart way to give generously — while reaping some benefits yourself.
How it works
An IRA can be a useful way to save for retirement and a valuable wealth-building tool. And while you’ve contributed to your IRA account for years so you can reap the benefits later, you may not be ready to take your distributions when required — at age 70 1/2. If that’s the case, you may benefit from a smart and generous tax benefit: contributing your IRA distributions directly from your account to a charitable nonprofit organization, or 501(c)(3).
Since you made contributions to your IRA account on a pretax basis, you’ll be required to pay taxes on distributions from that account when you begin receiving them. These distributions increase your taxable income, which may complicate your financial situation. For some, the added income may place the taxpayer into a higher tax bracket. For others, it could be a way to ensure your charitable contributions are tax-free, even if you don’t qualify to itemize your deductions.
Who should do it?
According to Bettie Stammerjohn, executive director of Community Foundation of Greene County, any IRA holder over 70 1/2 who donates to a charitable nonprofit stands to benefit from this tax break.
“The typical American household supports five to 10 charitable organizations per year,” Stammerjohn said. “This is a way to support those organizations while decreasing your taxable income.”
Additionally, with a new tax plan in effect as of 2018 that doubles the standard deduction, it’s possible you’ll no longer itemize your deductions — the only way to take advantage of the charitable giving deduction. Giving through your IRA distributions allows you to get the same tax break without itemizing your deductions.
According to Forbes, the only reason not to take advantage of charitable donations made through your IRA distributions is if you’re able to get a greater tax benefit by donating substantially appreciated long-term capital gains property.
Making it easy
Stammerjohn understands the benefits of gifting through your IRA — because she helps community members do it every day. Through the Community Foundation of Greene County, Stammerjohn helps community members create endowments to benefit charitable organizations of their choosing. And for those who qualify, she always recommends those endowments be funded through IRA accounts.
An endowment differs from a typical donation in that the donations are invested, and proceeds of those investments are then distributed regularly to the organization of your choosing.
“We help individuals find ways to share their gifts with the community,” Stammerjohn said. “Endowments allow your donated funds to keep giving year after year.”
Community Foundation of Greene County endowments also come with a special perk: convenience.
“Since your donations are invested, those funds just continue to grow,” Stammerjohn said. “There’s no need to write a check every month, and the organization you choose receives a regular income it can count on and plan around."
Find out more
If you’re ready to find out more about reducing your taxable income while giving to charity, the Community Foundation of Greene County offers a variety of resources on their website and in their office. For more information on the benefits of individual and nonprofit IRA distribution donations, checkout the Community Foundation of Greene County’s IRA QCD packet on http://www.cfgcpa.org/.
“If you don’t need it, donate it,” Stammerjohn said. “It benefits you while doing some good for the community.”
A journalism graduate from Brigham Young University, Kristen has experience writing in a variety of fields, including art and culture, health and fitness and financial and real estate services. Kristen has written for USA Today, SFGate and the Knot.
This article is brought to you by The Community Foundation of Greene County.
108 East High Street
Waynesburg, PA 15370