It’s become vogue for our wealthier seniors (those whose finances do not rely on the need for IRA distributions) to make qualified charitable distributions.  That is when all or part of the annual RMD (required minimum distribution) is funneled directly to a charity- without once taking possession of the funds.  The funds that are directly channeled do not count as part of the donor’s taxable income.

But, there are some nuances that can trip up folks following these rules.

First, the withdrawal must be effected by 31 December of the year in question.  There are no extensions allowed.  Which really means you need to do it earlier, to ensure that your custodian doesn’t run a little late and make that RMD after the end of the year.

Or, the problems when one decides to send the funds to a donor-advised fund, a private foundation, or a charitable gift annuity.  Oh, you can do that- but those “middlemen” must fully release the funds to a bona-fide 501(c)(3) approved charity- or the donor is charged with receiving the income.

Also, if one is splitting the donation among various charities, a specific, separate acknowledgement of the data and amount given to the charity (as proof for the IRS) must be retained.   (It’s also true for single charity donations, since most IRA custodians provide no such special encoding on the 1099R indicating the withdrawal (RMD) went to a charity. So, the distribution gets listed on line 4a- but we report 4b [for the taxable component of the distribution] as zero.  It is further characterized as a qualified charitable distribution [assuming an electronic filing is being prepared].)

Another problem?   When the charity yields the donor a gift for the donation.  That’s a tote bag, a coffee mug, a T shirt, or a pen.  Oops.  There’s a recordable taxable event!

But, given the change in the tax laws in 2019, there are other issues.  Given the difficulty in itemizing (since the SALT limitation caps many of our deductions at $10K), giving money to charity via the RMD actually lowers our taxable income legally.

And, an RMD is not required.  Just because the Secure Act raised the RMD age to 72 does not mean that those of us who are 70.5 y of age can still pull funds from our IRA directly to charitable institutions.

Moreover, making these direct to charity deductions not only limit our income tax bracket creep, they help us avoid those Medicare Part B and Part D surcharges (which are based upon our adjusted gross income.)

Note further, however, that these benefits do not accrue if we are using a 401(k) plan, A SEP plan or a Simple IRA.  (OK, the latter two could qualify if no contributions were make to those plans during the current year.)

Be diligent to maintain those deductions!

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