When it comes to IRA RMD Charitable Contributions there are a few rules that you must follow. If you fail to follow these rules you could potentially run into problems with the IRS. Officially this strategy is known as a Qualified Charitable Distribution or QCD. For those that don’t want or need the money from their Required Minimum Distribution (RMD), a QCD can help reduce overall taxes, help avoid triggering phaseouts on benefits, and help reduce taxes on social security.
The rules to follow when making an IRA RMD Charitable Contribution or QCD are:
1. You have to 70 1/2 or older on the date the distribution is made.
2. Only certain retirement accounts qualify. Traditional IRAs and Roth IRAs as well as SIMPLE and SEP IRAs qualify.
3. You are limited to $100,000 per year, per taxpayer. So for a husband and wife $200,000 in a given year.
4. It must be done as a direct transfer. Your IRA custodian must send the money directly to the charity.
5. Only certain types of charities are acceptable. See below.
6. You must obtain a “CWA” letter from the charity. See below.
When making an IRA RMD Charitable Contribution only certain types of charities are acceptable. Per IRS regulations you may only use this strategy with Qualified Charitable Organizations. Generally speaking Private Foundations and Donor Advised Funds are not included in the definition of a Qualified Charitable Organization. Examples of organizations which are generally acceptable candidates include: churches, food banks, cancer/heart/lung research, schools, and animal rescue.
We recommend using the IRS’ charity search tool to help find a Qualified Charitable Organization. Here’s the link to the IRS Charity Search Tool.
When making an IRA RMD Charitable Contribution you must obtain a letter from the charity stating you did not receive any personal benefit. The IRS calls this a “contemporaneous written acknowledgement” or CWA for short. In the case of contributions to your church, the IRS recognizes you receive a religious benefit but allows this anyway. If the letter from the charity does not say something as specific as “no goods or services were received by the donor” the IRS could disallow the deduction.
To work with Almega Wealth Management to maximize your IRA RMD Charitable Contribution please call 877-4-ALMEGA or schedule a Discovery Meeting. We always work with your CPA or accountant to coordinate such contributions — we feel having all parties on the same page when making tax decisions helps prevents errors and reduces the time necessary for the preparation of your tax returns.