For clients that are charitably inclined, the question of gifting from retirement accounts often arises. The tax code does allow such a strategy, if certain conditions are met.

The Benefit

Being able to gift directly from a retirement account allows the distribution to come out of the account without any of the normal tax consequences. The distribution cannot be counted as a charitable deduction on Schedule A because it was not included in your income. The gift is made from dollars that were never taxed.

The distribution also counts for the Required Minimum Distribution (RMD) on the account. This allows those who do not need the required distribution from their retirement account to gift it directly to charity, thus not having it included as income.

Why is this a better option than simply making a withdrawal from the retirement account and then gifting that amount to charity?

A distribution from a retirement account is “above the line”, meaning it will increase your Adjusted Gross Income (AGI). The charitable deduction on Schedule A is “below the line”, thus it will not lower AGI. An increased AGI can have multiple negative consequences such as: increase the taxability of Social Security, increase Medicare premiums and phase out itemized deductions.

Requirements for the distribution to qualify as a Qualified Charitable Distribution

The following rules must be followed for the distribution to qualify as a QCD:

• The retirement account must be an individual retirement account (IRA).
• The donor must be age 70.5 at the time of the distribution.
• The distribution must be paid directly to a qualified public charity. Private foundations, charitable supporting organizations and donor advised funds are not eligible. Similarly, split-interest charitable trusts are not eligible.
• The maximum annual distribution, per person, is $100,000.

The financial professionals at Guillaume & Freckman do not provide tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.