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Charitable Gifting, RMDs and QCDs

Many “Friends of the Battleship” have charitable intent and want to help financially support this historic warship for posterity.

If you own an IRA,  the IRS mandates that you must take a Required Minimum Distribution (RMD) each year.

Are you aware that you can designate a portion of your RMD to the Battleship New Jersey in the form of a Qualified Charitable Contribution (QCD)?  Here are the specifics on how it works, and the many advantages to the taxpayer:

Using your RMD as a charitable contribution will exclude that amount from your adjusted-gross income (AGI) for the year, which means that in addition to reducing your income taxes, it also can decrease the amount of Social Security that is subject to tax and potentially lower your Medicare premiums. (You may be able to take a QCD from a Roth IRA, but there is no tax advantage.)

If this sounds like a strategy that could work for you here are
Some things you need to know:
  • Each person can donate the full amount of his or her RMD, up to a maximum of $100,000 annually. If you are a married couple filing jointly and you each have your own IRA, you both can use the $100,000 QCD rule.
  • You should work with your IRA custodian to correctly accomplish a QCD. Be careful not to withdraw the funds or deposit the RMD into your personal account and then write a personal check. The funds must be made payable directly from the IRA to the charity. (Some IRA custodians mail the check to the IRA owner; if that is the case for you, simply give the check to the charity.)
  • Be sure to inform your tax preparer that you did a QCD. Your IRA custodian will send you a 1099 showing that the distribution occurred, but the amount may not be clearly identified as a QCD. Be sure the QCD is correctly listed on your tax return or you will lose the tax break.
  • It is permissible to use less than the full RMD for the charitable distribution. So, for example, if you have an RMD of $6,000 and you want to give only $4,000 to charity, you still will need to withdraw the remaining $2,000 and pay taxes on it. (Taking the incorrect amount for your RMD could result in a hefty penalty.)
  • You can make a QCD that exceeds your RMD for a given year. However, that extra distribution cannot be carried over to meet the RMDs for future years.
  • You can distribute the money to multiple charities if you choose. The $100,000 per person limit applies to the sum of all QCDs taken from all your IRAs in the tax year. You can make one large contribution or several smaller contributions to one or more charities.
  • Donors cannot receive any benefit for making a qualified distribution to a charity. So, for example, you cannot use a QCD to purchase something at a charity auction or tickets to a charity event.
  • For a QCD to count toward your minimum annual IRA distribution, it must meet the same deadline as a normal distribution. (Usually Dec. 31.)
  • Not every organization or cause qualifies for a QCD. The organization must be a 501(c)(3). The Battleship New Jersey is a 501(c)(3) non-profit museum and memorial. A QCD cannot be made to donor-advised fund sponsors, private foundations or supporting organizations.
  • Before you arrange for the transfer of funds, be sure the charity is eligible. The first dollar out of an IRA is considered to be the RMD. So, if you take money out early in the year, that distribution would count toward your RMD, and you could potentially lose the tax benefit of the QCD. Say for example John, who is 75, takes his full RMD in February and deposits the funds into his bank account. In November, he wants to do a QCD. John cannot retroactively deem the February distribution to be a QCD. He must take an additional distribution if he still wishes to do a QCD for that calendar year. That income can be excluded, but it still will not offset the income from the RMD taken earlier in the year.
QCD to help support the Navy’s most decorated battleship

As we begin to review our financial plans for the new year, please consider a QCD to help support the Navy’s most decorated battleship.  At the same time, it’s a great way to create a legacy for yourself or your estate.  Of course, check with your tax advisor for any questions regarding how to move this initiative forward.

For questions or more information contact:
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