In the fourth quarter of any calendar year, it is likely that you have older donors (currently the rules apply to those over 70 ½) who are working with their tax advisors to calculate their “RMD” for that year. This is a requirement for an annual distribution from IRA-type accounts.
In the words of the IRS, “You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½.”
Might some of those donors be willing to “assign” their annual RMD to your institution? We talk about this in a “Tax Tips” blog post dated December 4, 2019, that can be found at:
But let’s go a little deeper. How might your Advancement or Development folks talk to potential “RMD donors?”
The tax logic behind this for some taxpayers may be that making a “qualified charitable distribution” or QCD (sometimes called a “Charitable IRA Rollover”) would keep the distribution from being included in their taxable income for the year. Alternatively, if a donor received the annual RMD and then gave some or all of that amount to a charity, their charitable contribution deduction may not offset their taxable distribution on a dollar-for-dollar basis. With the increased standard deduction brought about by the 2017 “Tax Cuts and Jobs Act,” the tax savings of a QCD for giving-minded donors could be significant.
EXAMPLE:
Samuel (a donor to your institution) owns a traditional IRA. His IRA account balance at the end of 2018 was $200,000. He is married and his spouse, Laura, is the sole beneficiary of Sam’s IRA Laura is 6 years younger than Sam. Sam turned 75 years old in 2019. He will use Table III (See IRS Publication 590-B) to calculate his RMD for 2019. Given these facts, Sam’s distribution period (used as a denominator) is 22.9. His required minimum distribution for 2019 would be $8,734 ($200,000 ÷ 22.9). Might he be interested in donating this (and future RMDs) to your institution?
**Note that if an IRA owner’s spouse is more than 10 years younger than they are and the spouse is the sole beneficiary of that IRA, things change. Uniform Lifetime Table II would be utilized.
For more information (that may assist your team in writing a donor information letter), check our IRS Publication 590-B, “Distributions from Individual Retirement Accounts (IRAs)” for more information.” It can be found at:
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