Charitable Giving & RMDs: A Win-Win Strategy for Retirees

Charitable Giving & RMDs A Win-Win Strategy for Retirees

By Corey Gragg, CFP®

Many dream of leaving a legacy—and required minimum distributions (RMDs) may offer a path for leaving yours. 

Using RMDs to facilitate charitable gifts can be a valuable tax strategy for retirees. If you want to turn your generosity into a tax break, you’ll need to navigate the eligibility requirements and limits of qualified charitable distributions (QCDs). Here’s how the process works.

Benefits of Charitable Giving and RMDs

To be clear, charitable gifts offer more than just financial benefits. By giving generously, you can make a positive impact on your community. Now that you’ve reached your retirement years, you can look back on the opportunities you’ve received and share them in a meaningful, measurable way.

Charitable donations can also offer tax benefits. Individuals who have made pre-tax contributions to a retirement account are required to take RMDs from those retirement accounts. The age at which RMDs are required depends on your date of birth, as dictated by the SECURE Act 2.0, which was passed in 2022. These distributions are normally taxed as ordinary income. However, making qualified charitable distributions (QCDs) to qualifying organizations can allow individuals to avoid paying taxes on the amount that is distributed directly to a charitable organization.

In other words, if you’re 70.5 years or older, you can save money by directing your RMDs straight to the qualifying charity of your choice. By linking your charitable giving and RMDs, you can reduce your tax liability while leaving your mark on your community.

Requirements for QCDs

While the process sounds straightforward, there are some requirements that apply to charitable giving and RMDs. These requirements govern the organizations that are eligible for tax deductions, as well as the amount you can deduct.

What Account Type Can I Use for Charitable Giving and RMDs?

This strategy only applies to specific retirement account types, including:

  • Traditional IRA
  • Rollover IRA
  • Inherited IRA
  • Inactive SEP IRA
  • Inactive SIMPLE IRA 

In every case, you must meet the minimum age requirement (70.5 and older) and adhere to RMD deadlines.

What Charities Qualify as a QCD?

To qualify as a QCD, a charity must have a 501(c)(3) non-profit status. Private foundations, donor-advised funds, and supporting organizations are excluded from eligibility as a QCD. Common examples of QCDs can include religious organizations, charities, volunteer fire and rescue departments, and non-profit educational organizations.

How Much Can I Donate to QCDs?

There is a cap on how much you can donate per year with this strategy. Taxpayers are limited to $100,000 per calendar year. This amount will be indexed annually for inflation starting in 2024. Similarly, the taxpayer must donate directly to the qualifying charity, which means that the money can’t be funneled through a business or separate organization. It is the taxpayer’s responsibility to keep track of all QCDs and report them during tax season.

How Do I Report Charitable Donations?

To unite your charitable giving and RMDs, you’ll need to report your QCDs on your annual income tax return. Using Form 1099-R, you’ll report all QCDs as normal distributions. The only exception is inherited IRAs, which are reported as death distributions. 

Keep in mind that you must obtain acknowledgment of the donation in order to claim it on your tax return. Many organizations can provide you with a receipt or giving statement, which you can use for tax reporting purposes.

Get Help With Your Tax-Free Donations

If you’re 70.5 or older and subject to required minimum distributions, QCDs can serve as a valuable, tax-efficient method for charitable giving, especially if you’re required to take minimum distributions from your retirement account. By following these tips, you’ll be better able to reduce your liability while also putting your money where it counts—back into your community.

If you need help navigating the legal and financial requirements of this strategy, the Elk River Wealth  team is here for you. We invite you to schedule an introductory meeting by emailing or calling (720) 452-1901.

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day.

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.