Qualified Charitable Funds Offer Advantages to Giving Early in the Year

At the Quad Cities Community Foundation, I frequently talk with donors about year-end giving. Charitable gift contributions before the end of the calendar year offer possible tax savings for that year, and the holidays are when many of us support the causes we care about.

I also let donors know that their approach to planned giving in a new year can be just as important. This is especially true for people age 70 ½ and older with Individual Retirement Accounts (IRAs). If you are in this group, you have the special opportunity to make charitable donations with extra tax benefits.

Once you reach age 73, IRAs have a yearly taxable Required Minimum Distribution (RMD). These IRA owners (or any IRA holder over age 70 ½) also have the unique option of making that distribution directly to a registered 501c3 charity. This is called a Qualified Charitable Distribution (QCD), and QCDs up to $105,000 do not count toward your taxable income.

So, why does timing early in the year matter? To ensure you receive the greatest tax benefit from a QCD, you must coordinate your QCD with your RMD. Why? The first dollars withdrawn from an IRA in any given year go toward satisfying your RMD. This is called the “first-dollars-out” rule. If you intend for your tax-free QCD to take the place of all or part of your taxable RMD, the QCD needs to come out before you take any RMD for yourself that calendar year.

QCDs are a fantastic option for people wanting to support communities and causes that matter most to them. Speak with a tax professional or your local community foundation to see how this giving option might fit into your generosity plans for 2024.