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Consider an IRA Charitable Rollover

Consider an IRA Charitable Rollover

April 24, 2019

Consider an IRA Charitable Rollover

If you want a tax break and want to help a nonprofit, this may be a good move.

Have you ever wanted to make a major charitable gift? Would you like a significant federal tax break in acknowledgment of that gift? If so, an IRA charitable rollover might be a good option.

If you are age 70½ or older and have one or more traditional IRAs, you may want to explore the potential of this tax provision. In the language of federal tax law, it is called a Qualified Charitable Distribution (QCD) – a direct transfer of up to $100,000 in IRA assets to a qualified charity.1

An IRA charitable rollover may help you lower your adjusted gross income (AGI). That may be a goal in your tax strategy, especially if your AGI is large enough to position you for increased Medicare premiums, greater taxation of your Social Security benefits, or exposure to the 3.8% investment income tax and the Medicare surtax.

Up to $100,000 may be excluded from your gross income during the year in which you make the gift. The gifted amount also counts toward your Required Minimum Distribution (RMD).1,2

By the way, this $100,000 annual QCD limit is per individual taxpayer. If you are married, you and your spouse may gift up to $200,000 in a year through IRA charitable rollovers. Imagine lowering your household’s AGI by as much as $200,000 in a tax year.2

The Internal Revenue Service will not let you claim the amount of a QCD as a deduction on Schedule A. (That would amount to a double tax break.)1 

You don't have to be incredibly wealthy to do this. When many people first learn about the IRA charitable rollover, they think it is only for multimillionaires. That is a misconception. Even if you do not think of yourself as wealthy, a QCD could prove a significant element in your tax strategy.

How does it work? Logistically speaking, an IRA charitable rollover has to unfold in a certain way. The custodian or trustee overseeing your IRA must either make the gift to the charity for you or give you a check made payable to the charity for the amount of the gift.2

Do not simply take a distribution from your IRA and then write a check to the charity. That does not qualify as a QCD. If you make this mistake, the money you have taken out of your IRA will simply be included in your gross income for the year, and you may not even be able to claim a charitable contribution deduction for your efforts.2,3

An IRA owner must be age 70½ or older to do this; the gifted assets must come from an IRA, or multiple IRAs, and are subject to RMD rules. (SEPs and SIMPLE IRAs are ineligible if an employer contribution has been made for the particular year.)1,2 

The charity or nonprofit involvedmust pass muster with the I.R.S. It must be a public charity eligible for charitable contribution deductions; that is, it must qualify as 501(c)(3) eligible. It cannot be a donor-advised fund or a private foundation. The charity should provide you with a letter of acknowledgement of your gift, for federal tax purposes. If that letter is not quickly sent to you, be firm in requesting it. It should state that you have received no gift, reward, or benefit from the charity in exchange for your contribution.2,3

If you pledge a donation to a qualified charity or nonprofit, an IRA charitable rollover can be used to satisfy your pledge.2 

This tax break has been a boon to charities and IRA owners alike. Correctly performed, a charitable IRA rollover may help to lessen tax issues while benefiting qualified nonprofit organizations.


As always, be sure to speak with a tax professional about your specific situation.

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


1 - [11/21/18]

2 - [4/13/18]

3 - [10/19/18]