As the end of the year approaches, if you are age 70 ½ or older with a tax-deferred individual retirement account (IRA), you may be thinking about your required minimum distribution, or RMD. RMDs are mandatory distributions from your IRA that increase your total taxable income. If you are already giving to charity, you might consider directing your IRA distribution to a charitable organization, so you can minimize your tax liability.
The IRS refers to this nontaxable distribution as a qualified charitable distribution, or QCD, but they’re also called IRA charitable distributions or IRA charitable rollovers.
While the IRS has strict limits on QCDs, the Greater Kansas City Community Foundation has several options you can consider.
Open a Designated Fund to Support a Specific Charity
If you plan to support one specific charity with your QCD, you can create a designated fund to receive the distribution. You may wish to stagger your donation to the charity over multiple years, rather than making the donation in one lump sum. Setting up a designated fund to receive the distribution gives you the freedom to donate to the charity on your timeline. You can set up additional designated funds if you wish to support more than one charity.
A great example of this comes from one of our donors who wanted to support his church with a QCD of $105,000. This donor was private about his wealth and wanted to spread out his donation over multiple years, so he used a designated fund to make $10,500 grants to the church over 10 years.
Open a Scholarship Fund to Support Students’ Educational Pursuits
If you want to support education with your QCD, you can establish a scholarship fund to receive the distribution. You set the award criteria and nominate a selection committee to choose the scholarship recipients. We promote the scholarship opportunity, accept applications, verify students’ eligibility and process scholarship payments. The minimum amount required to open a scholarship fund is $25,000.
Assets held in designated funds and scholarship funds are invested, and the growth is tax-free. You choose how your fund is invested, whether that’s in our investment pools or with your financial advisor.
We can also accept QCDs into field of interest funds and unrestricted funds. Field of interest funds are set up to benefit a specific charitable field, like medical research or disaster relief, and a committee determines which organizations receive grants from the fund.
Whether it’s a designated fund, a scholarship fund or a field of interest fund, QCDs are tax-free up to $105,000 per year.
Donor-advised funds are not eligible for QCDs, but donations to donor-advised funds are tax deductible, so we suggest working with your financial advisor or tax consultant to determine the best option for your situation.
Contact us at info@growyourgiving.org or 816.842.0944 to learn more about QCDs, or to set up a designated fund or a scholarship fund.
Authored by: Leanne Breiby, Director of Communications