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Joan’s Toolbox: Qualified Charitable Distributions

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Joan’s Toolbox is an occasional series in which Joan Hoge-North, DCF vice president for philanthropy, shares information about different ways of making charitable gifts that maximize impact and tax advantages.

Make a QCD for Maximum Community Impact
and Maximum Tax Advantages

Retirement funds are kind of like electronic piggy banks, helping us to put aside money for the future.

But when it’s time for that money to come out, there are a few things to think about so we don’t break the (piggy) bank, so to speak.

Everyone must take annual withdrawals from their tax-deferred retirement accounts once they reach 70.5, but some good planning can ease the tax bite.

If you have to take the required minimum withdrawal but don’t need all or some of the money, you may be able to lower your tax liability by sending the money directly to charity through a qualified charitable distribution, or QCD. 

Here’s where the Delaware Community Foundation can be a resource. QCDs can be made directly to the DCF to support our work in the community, or they can be made to most types of charitable funds at the DCF. (IRS regulations do not permit QCDs into donor advised funds.)

QCDs can go into designated funds, which provide grants to specific charitable organizations; field of interest funds, which allow a donor to support a specific passion or interest; scholarship funds; or to the DCF’s Delaware Forever Fund, which was developed to address some of the community’s most pressing needs as they arise.

A QCD allows you to transfer up to $100,000 directly from your IRA to a qualified charity without having to pay income tax on the donation. Although people in any tax bracket can benefit from making a charitable contribution from an IRA, those in the higher tax brackets get the biggest bang for their buck. However, even a $1,000 donation through a QCD could save $250 in federal taxes.

There are a few caveats to keep in mind when planning a QCD. For starters, only IRAs are eligible for a QCD. You also need to make sure the recipient of your donation is a qualifying charity – either a 501(c)(3) organization or house of worship. Private foundations, donor advised funds or supporting organizations don’t count. Our team at the DCF can help make sure you select a qualifying organization.

Donations through a QCD must be made by the end of the year in order to exclude that amount from your taxable income. You also will have to let your tax preparer to know to note the QCD on your 1099-R form, as IRA custodians don’t have to identify it. If you don’t, then the withdrawal will be fully taxable, eliminating the tax benefits of the donation.

Lastly, you can’t double dip on the donation. If you donate through a QCD you don’t get to claim an itemized charitable contribution tax deduction as well.

As always, the DCF team is happy to work with you and your tax preparer or other financial advisors to make sure your gift has the maximum community impact and the maximum tax advantages.

Piggy banks help us plan for the future. You can use a QCD – and the Delaware Community Foundation – to help improve the future of worthy nonprofit organizations.

Contact Joan Hoge-North at 302.504.5224.