If you have an IRA and are age 70 ½ or higher, you will have to meet a Required Minimum Distribution (RMD) each year. Wondering how you can fulfill your RMD and help create positively life-changing experiences available and accessible to participants, particularly in core urban, rural, and small schools? Consider using a Qualified Charitable Distribution (QCD) to make your gift. For you, It’s a win-win.
A QCD is a direct transfer of funds from your IRA, payable to a qualified charity, like Music for All. Once you’ve reached age 70½, the QCD amount counts toward your required distribution for the year, up to an annual maximum of $100,000. It’s not included in your gross income and does not count against the limits on deductions for charitable contributions. These can be significant advantages for certain high-income earners. This contribution will help you on your Medicare Insurance premiums and any surtax on investment income.
This strategy is being used by many people who are required to take an RMD and are charitable.
Here is an example of the advantage of an IRA charitable rollover. Carla, an unmarried IRA owner, has an Adjusted Gross Income (AGI) of $225,000, including $180,000 of investment income (thanks to a sale of stock) and she has a required IRA payout of $45,000. This year, she plans to write a check for $35,000 to Music for All, in honor of her late husband who was the director of a large high school marching band. Under current law, $25,000 of her investment income would be subject to the 3.8% surtax because Carla’s AGI is above the $200,000 income threshold for individual taxpayers. However, if she makes a $35,000 charitable gift to Music for All directly from her IRA, her tax picture changes. Carla does not receive a tax deduction for her gift, but she reduces the taxable portion of her IRA payout to $10,000 (from $45,000) and lowers her AGI to $190,000. Since she is now below the $200,000 income threshold, she is no longer subject to the 3.8% surtax on her investment income.