Understanding Required Minimum Distributions and Qualified Charitable Distributions
Donating retirement account assets can result in greater impact for charities, and are advantageous for legacy planning.
Required Minimum Distributions
When you reach age 72, you are required to take distributions from certain retirement plans, including traditional IRAs, 401(k) plans, 403(b) plans, profit sharing plans, and other defined contribution plans.
The Required Minimum Distribution (RMD) for each year is calculated based on the account balance from the end of the previous calendar year and a distribution period from the IRS’s “Uniform Lifetime Table.” You can withdraw more than the minimum required amount, but all withdrawals—including your RMD– will be included in your taxable income (except for any part that was taxed before or that can be received tax-free, such as designated Roth accounts).
You can learn more about calculating your RMD by speaking with your tax advisor or reading this IRS webpage.
Qualified Charitable Distributions
Qualified Charitable Distributions (QCDs), sometimes known as charitable IRA rollovers, are a great way to donate some of your retirement savings to charities while lowering your tax bill.
QCDs are distributions from your IRA custodian directly to qualified charities, and they can be taken at age 70½ and older. QCDs can satisfy some or all of your RMD (up to $100,000 per person per year) and can reduce or eliminate the income tax ordinarily due on RMD income. Timing a QCD with your RMD is critical, so please speak with your professional advisor to determine the best option for you. (Please note that not all IRAs are eligible to make QCDs).
Some of the benefits of donating your RMD are:
- Your Adjusted Gross Income (AGI) for income tax purposes is directly reduced by the amount donated to charity
- You can donate directly to any qualified 501(c)3 organization
- A QCD reduces a donor’s AGI, regardless of whether that person itemizes deductions
The St. Louis Community Foundation is a 501(c)3 public charity and is eligible to receive QCDs for our general operating purposes, our endowment fund, or for any scholarship or designated fund. Donor advised funds cannot accept QCDs.
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