Get a Checkbook For Your IRA
Paul Meloan
Charitable Contributions Directly From Your IRA
Most retired persons know that once they turn 72 years old they are required to take distributions from their qualified retirement plans (401k & IRAs, mostly). Some retired persons that age also know another important point. If they wish to make charitable contributions, they can do so directly from an IRA1.
What Are The Advantages?
The traditional route is just writing a check, then deducting the gift on Schedule A of the tax return. Taking it directly from the IRA has several key advantages over the traditional route.
- If the gift goes directly from the IRA, it is a qualified distribution (towards your required amount) but is not included in gross income.
- Charitable deductions are only a benefit to taxpayers who itemize their deductions. With the new tax law effective in 2018, fewer people are itemizing their deductions. This way, a taxpayer gets the same tax benefit of a charitable gift but can still use the standard deduction if it’s higher.
- Other tax functions (like Medicare premiums) are a function of gross income, not taxable income. This method reduces the gross income in a way that may reduce other tax burdens.
How Do I Make The Donation?
One of our custodians (Schwab) has taken this idea and run with it. Our clients with IRAs at Schwab can get a checkbook for their IRA. That allows them to make the contribution without any of the paperwork that usually accompanies an IRA distribution. The recipient organization may not even notice the money is coming from an IRA. Most could not care any less.
Are you or your relatives lucky enough to take distributions from a retirement plan and have charitable intent? Writing a check from your IRA is a winning combination.
1. Maximum annual QCD per individual is $100,000. Contributing to an IRA after age 70 1/2 may result in a reduction of the QCD amount you can deduct; please consult your financial advisor for details.
This post is adapted from Paul Meloan's Vested Interest blog, where it originally appeared on May 22, 2019. This content is developed from sources believed to be providing accurate information as of the date of publication, and is intended for informational purposes only. Please consult your financial professionals for specific information regarding your individual situation. Past performance does not guarantee future results. All investing involves risk, including risk of loss.