Using the Qualifying Charitable Distribution (QCD) for IRA’s
There is a tax provision that allows people over 70 ½ to
transfer up to $100,000 a year from their IRA to a qualifying charity as a
direct pass-through. It usually doesn’t
affect your other taxes and can be used to satisfy your Required Minimum
Distributions. In other words – the
state and federal governments never see a dime.
I’d like to come at the opportunity from two different
angles. The first is for people who are
both generous to charity and to their family.
The second is for leaders (or soon-to-be leaders) in those charities.
For families: think of this more as succession planning than
current tax planning.
Your family inherits your assets in three buckets. Bucket one has things like real estate,
securities and personal possessions.
Your heirs may get a step-up in the cost basis so all capital gains are
forgiven. Assets pass at 100 cents on
the dollar.
Bucket two has life insurance. Structured correctly, your family gets those benefits
income tax free.
Bucket three has assets that are always taxable like
annuities and retirement accounts. If
you don’t pay the tax, your heirs will.
Your children (the employed ones) could lose up to 40% of the value to
the government.
Bucket three is the low-hanging fruit for charitable
giving. If you want to do right by your
church or cause, give them assets with limited value to your taxable heirs. Leave your family the assets they can keep. The QCD is a good start.
At your annual financial planning review, make a list of what’s
in your three buckets. You may also find
things in the first two you can do without now and enjoy the deduction. Some gifts are best given from a warm hand.
For inspiring charitable leaders: This isn’t about using the QCD – it’s about selling
it.
You know people who could contribute a lot more than they have. Next time you ask for a donation, DO NOT
ask for cash!
Try this instead:
Hello Jeff, It’s campaign time again.
Will you be using the new IRA direct transfer this year?
Huh?
It’s a loophole that allows folks to transfer money directly from their
IRA to charities like us without paying any taxes. You can use it to avoid taxes on your
required distributions too. It’s limited
to a hundred thousand dollars a year – but we can work around that. Handy estate gift too …
Er, uh ….
Why don’t you and Helen join us for lunch next Thursday? I can tell you how we’re taking advantage of
the opportunity.
See you then.
Let’s break this down:
In a few sentences, you significantly raised the bar, brought new assets
into the conversation, broached death and taxes tactfully, let him know
he’s not alone and closed for the “ask” appointment.
Does it matter if he isn’t 70 ½ yet? No.
Taking money from an IRA and deducting it works about the same as the
pass-through for most people in their sixties.
Does it matter if he doesn’t even have an IRA? No. There may be things in buckets one and
two that offer nice write-offs.
What does matter is you just started a peer-to-peer conversation
about his serious money. Cash is a byproduct
of assets. Go for the source!
BTW, big checks like this make nice challenge grants to help
other contributors find their wallets.
Leverage them. Maybe Jeff can
make a couple calls.
Your pancake breakfast isn’t going to restore the chapel. Be inspirational!
If I can help explain this to friends who serve, just say
when and where and I’ll be there.
As always, the opinions expressed here are mine and don’t
necessarily reflect the views of LPL Financial or anyone else. This is generic information so definitely run
this by your tax and legal advisors for your specific situation. They may have even better ways to have your
cake and eat it too. sh
