Individual Retirement Account (IRA) Qualified Charitable Distributions (QCDs) are powerful tools that can be used to support nonprofit organizations while reducing your individual tax liability. By using these financial instruments, you can enjoy several benefits while also supporting causes you care about.
Retirement accounts, such as 401(k)s, IRAs, and Roth IRAs, are investment vehicles designed to help people save for retirement. They offer tax benefits to encourage people to save for their future. Depending on the type of account, contributions may be tax-deductible or made with pre-tax dollars, and earnings grow tax-free until withdrawal.
However, once an individual reaches age 73, they are required to start taking required minimum distributions (RMDs) from their retirement accounts. These distributions are subject to income tax and can significantly increase an individual's tax bill.
One strategy for reducing the tax burden associated with distributions is to use retirement account (IRA) distributions to make charitable donations. This can be done through Qualified Charitable Distributions (QCDs).
A QCD allows individuals who must take required minimum distributions the ability to donate up to $100,000 annually from their IRA to a qualified charity for an overall income tax reduction. The distribution counts towards satisfying the individual's RMD, but is not included in their taxable income. This can provide a significant tax benefit and subsequent good deed.
There are several specific benefits to using IRAs and QCDs to help fund Nonprofit Organizations:
Tax Savings*
By using retirement accounts and QCDs to help fund nonprofit organizations, you can significantly reduce your tax burden. By distributing what would otherwise be income to a non-profit organization, you’re able to avoid paying taxes on RMDs that would otherwise be included in your taxable income. This can be particularly beneficial for high-income individuals already subject to higher tax rates.
Simplicity
Using Qualified Charitable Distributions from your IRA to fund nonprofit organizations is a simple and straightforward process. Once individuals reach age 73 and are mandated to begin required minimum distributions, they can make QCDs directly to qualified charities without having to worry about tax implications. This can make charitable giving more accessible and appealing to individuals who may not have considered it otherwise.
Legacy Planning
Using IRAS and QCDs to fund nonprofit organizations can also be a valuable part of legacy planning. By designating a nonprofit organization as the beneficiary of a retirement account, you can ensure that your assets are used to support causes you care about even after your passing as well as ensure that the estate will be liable for minimal taxes. This can help you leave a long-lasting impact on the world and make a positive difference in the lives of others.
Increased Charitable Giving
Using retirement accounts and QCDs to fund nonprofit organizations can also increase charitable giving. Because the distributions are not subject to income tax, you can donate more money to a non-profit organization than you might typically be able to with after-tax dollars. This can help you make a bigger impact for the causes you care about.
IRAs and QCDs can potentially offer a streamlined and effective way to make a positive impact while reducing your taxes. If you are interested in using retirement accounts and QCDs to support a nonprofit organization or have questions about required minimum distributions or retirement accounts, please reach out Full Circle Financial Planning via email info@fullcirclefp.com, phone (517) 220-2155, or our website by clicking here.
*This should not be construed as tax or legal advice. Please always consult your tax or legal professional.
Securities offered through Sigma Financial Corporation, Member FINRA/SIPC. Investment Advisory services offered through Sigma Planning Corporation, a Registered Investment Advisor. Full Circle Financial Planning is independent of Sigma Financial Corporation and Sigma Planning Corporation.