For donors aged 70 1/2 or older-- and particularly donors 72 and older who must take Required Minimum Distributions (RMDs)-- a Qualified Charitable Distribution (QCD) from an Individual Retirement Account (IRA) offers significant advantages.
Individuals may use QCDs to donate up to $100,000 (now $105,000 indexed for inflation, or $210,000 per married couple) per year directly from their IRAs to eligible charities—such as the Jewish Federation of Southern New Jersey and its family of agencies, synagogues, and day schools—providing tax benefits and fulfilling philanthropic goals simultaneously.
For any donors who plan to utilize an IRA to initiate QCDs for charitable giving, here are a few reminders from the Jewish Community Foundation, Inc. (JCF), noting that the JCF does not provide financial, legal, or tax advice, and so trusted advisors should be consulted:
In addition to utilizing a QCD for one’s regular annual philanthropy, a QCD is an effective way to establish an endowment fund with the JCF. An endowment fund perpetuates an annual gift, lasting for many decades into the future and providing steady and reliable income for a designated charitable cause. Please contact JCF Executive Director David Snyder at 856-673-2571 or dsnyder@jfedsnj.org to learn more.
When initiating a QCD, donors should alert the beneficiary organization that will be receiving the contribution, to ensure that the charity knows how to book the donation in case no instructions are included from the broker.
Further, it is important to plan QCDs ahead of RMDs due to a “first dollars out” rule, since the first dollars out are considered to satisfy one’s RMD. By initiating a QCD after the RMD payout, a donor may jeopardize their tax benefits (more on this below), so with several months left in the calendar year, now is a great time to put plans in motion before it may be too late.
Note that donors who utilize a donor advised fund (DAF) to centralize annual charitable giving cannot use a QCD to grow a DAF, per regulations by the Internal Revenue Service.
A key advantage of initiating a QCD is the tax benefit. Normally, RMDs from IRAs are included in taxable income, potentially pushing the taxpayer into a higher tax bracket and increasing the amount of taxes owed. However, QCDs are excluded from taxable income, effectively reducing the taxpayer's adjusted gross income (AGI). A lower AGI can result in numerous tax advantages, including potentially reducing the taxability of Social Security benefits, decreasing Medicare premiums, and preserving eligibility for certain tax credits and deductions.
Additionally, QCDs can be particularly beneficial for taxpayers who do not itemize their deductions. With the increased standard deduction introduced by the Tax Cuts and Jobs Act of 2017, fewer individuals are itemizing. Since QCDs do not require itemizing to receive the tax benefit, they offer a unique way to gain a tax advantage from charitable contributions even when taking the standard deduction.
Last, QCDs can be especially advantageous for donors whose RMDs are not needed for living expenses, allowing them to contribute to meaningful causes without incurring additional tax burdens.
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