Qualified Charitable Distribution
As a means of giving to the church
The IRS Qualified Charitable Distribution provision allows persons to transfer funds from their IRA to a charity of their choice anytime during the year. A person who is 70½ years of age or older can transfer up to $100,000 to a charity, tax-free, each year -- even if that’s more than your Required Minimum Distribution. The money counts as your required minimum distribution but isn’t included in your adjusted gross income.
For many retirees this means they can make a larger-than-expected contribution since it is deducted from their gross income. In other words, the person does not pay taxes on this withdrawal if the contribution is made directly from their IRA as part of their required minimum distribution.
NOTE: We encourage you to speak to your own tax advisors and financial consultants about your personal situation before making a final decision and note that tax laws do change from time to time.
So how can you do this as a way of making a contribution to the church?
You need to have the money transferred directly from your IRA to First Methodist Conroe for it to count as the tax-free transfer. The check from the IRA administration needs to be made out to First Methodist Conroe but can be mailed to you to submit to the church. This eases the record keeping for you and for FMC. Or You can have the IRA Administrator send a check from your account to FMC. Additionally, If you have check-writing privileges for your IRA, you can write a check to FMC to be withdrawn from your IRA account.
Can I withdraw the money from my IRA and then write a check to charity, or do I need to transfer the money directly?
The tax-free transfer won’t count if you withdraw the money from the IRA first and then make a contribution to FMC. You can take a charitable deduction (only if you itemize) for your contribution in that case, but the IRA withdrawal will be included in your adjusted gross income. The money needs to be transferred directly from the IRA to FMC in order to be tax-free.
What if I am turning 70 ½ during the year?
Even though you can take your RMD anytime during the year you turn age 70½ (or until April 1 of the year after you turn 70½), you must wait until you actually turn age 70½ to make the tax-free transfer to FMC.
So which is better: the tax-free transfer or the charitable deduction?
If you make a tax-free transfer from your IRA to charity, you can’t also deduct that money as a charitable contribution. But the tax-free transfer could give you extra benefits.
- You don’t need to itemize your deductions to get a tax benefit from the gift (and many people who no longer have a mortgage don’t itemize their deductions).
- Making the tax-free transfer keeps the money out of your adjusted gross income (AGI). That could help you avoid the Medicare high-income surcharge, which boosts your Part B and Part D premiums.
- Keeping the money out of your AGI could also make less of your Social Security benefits taxable.