Adapted from an article published by The Episcopal Network for Stewardship in October 2020
Some members of St. Barnabas may be fulfilling their 2020 pledges / regular giving or are planning to pay 2021 pledges / make regular donations using the required minimum distribution (RMD) from their retirement accounts. There is a clear federal income tax advantage to giving to charities when using a RMD as the source of the gift. Namely and at the donor’s election, a qualified charitable distribution (QCD) from a retirement account counts towards the annual RMD and is excluded from taxable income. Be aware: this is not the case with a regular withdrawal from an individual retirement account if the individual uses the money to make charitable contributions later on.
Like so many things in 2020, RMDs from retirement accounts are different this year. At the individual’s election, with a deadline of this past August 31, the CARES Act temporarily waived a RMD for all types of retirement plans (including IRAs, 401(k)s, 403(b)s, 457(b)s, and inherited IRA plans) during calendar year 2020. As a result, and if you elected to waive the RMD for 2020, a QCD does nothing to reduce 2020 taxable income.
It is expected that the full benefits of using QCDs will return to normal in 2021. For planning purposes, there is a limit to the annual amount QCDs count toward satisfying the RMD for an annual period, and thereby reducing your taxable income – this limit is up to $100,000 per individual. As a result, QCDs can be used widely for charitable giving to St. Barnabas, such as contributing to the Endowment Fund or to other vestry-approved charitable uses, and to other charitable organizations. In addition to reducing taxable income there are other potential benefits of charitable giving using QCDs including, but are not limited to, managing the premium paid for Medicare coverage and your marginal income tax rate.
If you qualify for and are interested in using QCDs for charitable giving, we recommend consulting with your financial or tax advisor to optimism the benefits of the approach.