IRA Charitable Rollover Rules and the New Tax Law
January 2018 ushered in a new tax law with many sweeping changes. The 503-page document left many CAI supporters wondering how their donations to charities will be affected, and what to do about the loss of possible deductions. There is good news as the new tax law preserves the IRA charitable rollover rules, more appropriately called a qualified charitable distribution (QCD), making it permanent. This allows donors to continue to donate directly from their IRA to nonprofit organizations like CAI. The new tax bill streamlines giving options through your IRA and opens up more opportunities to make a charitable donation through your IRA when it’s most convenient for you.
A QCD simplifies giving through your IRA. These rules have been around for a few years, but may be more appealing for those looking to give than in previous years given the tax law changes to the standard deduction and elimination of other deductions. Now more than ever, IRA charitable rollover rules provide a way to preserve an income-tax reducing “charitable deduction” and lets you see the impact you’re making on the lives of people in Central Asia in your lifetime while making sure you are taking care of your family.
IRA Charitable Rollover Rules and Qualified Charitable Distribution
When you reach the age of 70 1/2 the IRS states you will need to begin taking out a required minimum distribution from your IRA each year. This distribution counts as income, meaning you are required to pay taxes on it at the end of the year. The qualified charitable distribution (QCD) allows you to roll over funds from your IRA directly to a 501c3 organization, up to $100,000 for an individual and $200,000 for a couple filing jointly, without paying taxes on those funds as part of your income. The distribution must be made straight from your IRA to an organization like CAI.
This QCD counts as part of your required annual minimum distribution, and you pay no income tax on any QCD since the distribution never comes to you. You only pay taxes on the remaining amount left to be withdrawn. A recent blog post by Howard Kaye Insurance points out the benefits are twofold, “The two major benefits in that scenario are that you are helping to sustain the charity of your choice while minimizing or negating taxes on your qualified accounts.”
How do IRA Charitable Rollover Rules Benefit My Legacy?
IRA charitable rollover rules were initially introduced in 2006 and signed into law by Congress in 2015. They have now been made permanent. Before these rules were introduced, someone wanting to contribute to charity through their IRA first had to remove funds and recognize them as income to be taxed. Now you can designate a 501c3 registered organization to directly receive all or a portion of your required minimum annual distribution and reduce or eliminate the amount of tax you pay for the entire amount of the distribution. Because registered organizations are tax-exempt, the amount you donate will go directly to the organization where it can do the most good for the causes you love.
You can use these IRA charitable rollover rules to reduce your estate, and see the effects of your charitable giving in your lifetime while reducing a tax burden on your heirs. Howard Kayne stresses the big takeaway is that “2018, and all subsequent years, should prove to be more favorable for your estate and your wealth overall. With the solidification of the qualified charitable distribution rules moving forward, you now have another wealth management strategy available to you and to your heirs.”
How Can I Use the Qualified Charitable Distribution to Donate to CAI?
The first thing to do is set up a meeting with your financial advisor or estate planner to talk about IRA charitable rollover rules and how they fit into your plan. Everyone is in a unique situation, and a professional advisor can help you navigate your roadmap for retirement and beyond.
There are other options you can consider that will benefit your family and help sustain a legacy of providing education to those who need it. Naming CAI as a beneficiary to receive a percentage of the remainder of your IRA in a bequest is another option, and your advisor may have even more.
The big takeaway is that you might have more options than you had before. If your passion is in providing access to education for people in Afghanistan, Pakistan, and Tajikistan you can leave a legacy that ensures important projects for literacy and education continue. With the IRA charitable rollover rules, you can see the impact of your donations happen in your lifetime.