Nancy Vaughan For The Herald Bulletin Oct 27, 2019
I have noticed more donations this fall coming by way of a donor’s investment company. Here’s why donors age 70.5 and older should consider doing the same.
If you were born before 1950 and have an Individual Retirement Account, you must take a Required Minimum Distribution (RMD) from that account. The income is taxable at distribution UNLESS you opt to make a Qualified Charitable Distribution (QCD) also referred to as an IRA charitable rollover.
The key to a QCD is that the distribution transfers directly from the IRA custodian to a qualified charity. In order to qualify for the tax year, the check must be cashed by the recipient organization no later than Dec. 31, so donors need to make the request in plenty of time for the IRA custodian to process and mail the check, and for the charity to process and deposit it.
Some large investment companies provide specific forms for this purpose, but there is no uniformity of document or process; therefore, some donors may have difficulty with the process and some charities may receive checks from investment companies without donor information included.
This year, United Way has launched a tool to make the process easier for donors. It can be found at www.freewill.com/qcd/unitedway. The site calculates the amount of a donor’s RMD and QCD, and provides additional information, including links to the IRS site for more detailed questions. It also provides step-by-step instructions and all the paperwork necessary to process the donation, including the specific forms for those investment firms that have them, and a general form for other companies.
In addition, the United Way receives notification that the donation is in process so we can make sure to follow up on our end. The site provides a drop down of United Ways by name. Caveat: there is more than one United Way of Madison County in the U.S. so be sure to choose Indiana, and if you don’t hear from us, give us a call at 765-643-7493 so we can make sure all is moving forward. Call, too, if you need assistance with the site or have additional questions about the process. In order to provide sufficient processing time, donors should make sure their IRA custodian receives instructions prior to Dec. 7 – sooner if possible – to be counted as a 2019 distribution.
The change in tax law that created far fewer itemized returns combined with the increase in the baby boomer population has made QCDs the fastest growing form of giving. RMDs that are not withdrawn are subject to a 50% penalty so the money must be withdrawn and becomes either taxable income or a QCD. QCDs provide value for the donor because they can use that money to support the causes they care about with income that was set aside tax free.
Charities, including United Way, are feeling the pinch from donors who can no longer itemize charitable deductions. The QCD is one way for both the charity and donor to continue to benefit through tax-free donations.