VIEWPOINT: IRAs offer opportunity for tax-advantaged giving

Retirement funds can help individuals create the future they want, becoming a reliable source of income and a safety net down the road. They can also be a way to support charitable causes that matter most to you – and help you leave a legacy through philanthropy.

Joanne McGeoch

Everyone 72 or older must take annual withdrawals from their tax-deferred retirement accounts. Required minimum distributions (RMDs) can help retirees meet monthly expenses and pay bills, as they enjoy their later years and focus on their friends, families, health, and personal interests. But RMDs can also come with a tax burden.

For those who do not regularly rely on RMDs for living expenses – because they are still working, have a pension, or are heavily invested, for example – the annual withdrawal can present an unexpected tax burden. RMDs have an impact on annual taxes, potentially boosting an individual’s income into a higher tax bracket. Here is where a certain charitable maneuver can lead to significant tax benefits, while providing significant philanthropic impact. 

Qualified charitable distributions (QCDs) are direct gifts from an IRA to an eligible charity or charitable fund, such as those held at the Delaware Community Foundation. By making a QCD, an individual can give a large gift to a cause that is meaningful to them while seeing a tax advantage. When the retirement account custodian sends a QCD directly to a charity, that amount is not considered income to the individual, thereby reducing their adjusted gross income (AGI) for that year.

It’s a shortcut that supports your philanthropic goals, helps nonprofits receive larger gifts, all while making a difference on your bottom line. There is no tax liability for the donor and reduces the donor’s adjusted gross income, so this can have myriad benefits. For retirees concerned about Medicare costs, a lower AGI may reduce the cost of Medicare.

Additionally, giving through a QCD can be flexible, depending on your finances and needs. Should you require part, but not all, of your RMD, you can still use this avenue to make a gift. Whatever amount you send to charity, you will see the tax benefits on it – whether you direct $1,000, $10,000 or even up to the annual per person limit of $100,000 from your IRA.

At the DCF, some individuals choose to give via a QCD every year, sending one large amount to a single fund that benefits multiple charities. Others give directly to DCF to support our work in philanthropy throughout our state.

Retirement is a time to savor all moments, and being generous is one of the greatest joys in life. If you are fortunate enough to not rely on your RMDs, utilizing a QCD can be both personally satisfying and tax wise.

When you support nonprofits in your local community, you are building a better future for everyone. Talk with your professional advisor to find out how you can make a difference throughout your retirement with a QCD to a fund at the Delaware Community Foundation or charity of your choice.

Joanne McGeoch is vice president for philanthropy at the Delaware Community Foundation.