IRA Charitable Rollover
(Now known as “qualified charitable distributions”)
How and Why to Use Your IRA to Make Gifts to Pomona
The IRA Qualified Charitable Distribution (“QCD”) provides an excellent opportunity to make gifts to Pomona College without incurring income taxes today or estate tax in the future.
- You must be age 70½ or older on the date of the gift.
- Transfers must be made directly from a traditional or Roth IRA account by your IRA administrator to Pomona College.
- Funds that are withdrawn by you and then contributed do NOT qualify.
- Gifts from 401k, 403b, SEP and other plans do NOT qualify.
- Gifts must be outright.
- Distributions for life-income arrangements such as charitable gift annuities and charitable remainder trusts are NOT allowed.
- A QCD can be used to satisfy a pledge or for a donor-designated use.
IRA Qualified Charitable Distributions:
- Can total up to $100,000 per year.
- Each spouse may make an IRA QCD of $100,000 per year from his or her own IRA.
- The College can receive a distribution directly from an IRA in an amount greater than $100,000, but the excess over $100,000 will be treated as a taxable distribution to the donor. An offsetting charitable deduction for the excess may be available depending on your circumstances.
- Are not included in your adjusted gross income for federal income tax purposes on your IRS Form 1040 (no charitable deduction is available, however).
- Count towards your required minimum distribution for the year from your IRA.
As you plan for your required minimum distribution each year, consider using those funds for your annual fund or capital gift to Pomona using the IRA Qualified Charitable Distribution.
Suppose Cecil has $500,000 in an IRA and he wants to contribute $50,000 to Pomona College in honor of his 50th reunion. He can instruct the administrator of his IRA to transfer $50,000 directly to Pomona College as a QCD, and the amount distributed to Pomona will not be subject to federal tax and will be counted toward his annual required minimum distribution. He could also donate $25,000 from this IRA this year and another $25,000 next year, for a total of $50,000. Again, those amounts will satisfy his annual required minimum distributions in the year transferred and will not be subject to federal tax.
Questions and Answers
The Protecting Americans from Tax Hikes Act of 2015 permanently extended the IRA Qualified Charitable Distribution to allow individuals age 70½ and older to make direct transfers totaling up to $100,000 per year to 501(c)(3) public charities, without having to count the transfers as income for federal income tax purposes.
How much can I transfer?
- $100,000 per year. Each spouse may make an IRA QCD of $100,000 per year from his or her own IRA.
From what accounts can I make transfers?
- Transfers must come from your traditional or Roth IRA directly to Pomona. If you have retirement assets in 401k, 403b or other retirement accounts, you may roll those funds into an IRA, and then direct the IRA administrator to transfer the funds from the IRA directly to Pomona. Note, however, that you will need to satisfy any remaining required minimum distribution from the retirement account before rolling over to the IRA, so this option may work best for an IRA QCD planned for the next calendar year.
To what charities can I make gifts?
- Pomona College and other qualified public charities under Section 170(b)(1)(A) of the Internal Revenue Code, to which deductible contributions can be made.
Can I use the IRA Qualified Charitable Distribution to fund life-income gifts (charitable gift annuities or charitable remainder trusts), donor advised funds or supporting organizations?
- No, these are not eligible under current law.
Can I use the IRA Qualified Charitable Distribution to support a particular purpose, like financial aid?
- Yes, IRA Qualified Charitable Distributions can be designated to support important needs of the College in the same way as other outright gifts.
How will Pomona College count the gift?
- We will give you full credit for the entire gift, the same as other outright gifts.
What are the tax implications to me?
- Federal — You do not recognize taxable income on the transfer to Pomona College, provided the funds go directly from the IRA administrator to the College. However, you are not entitled to an income tax charitable deduction for your QCD gift.
- State — Each state has different laws, so you will need to consult with your own tax advisor. Some states have a state income tax and will include this transfer as income. Within those states, some will allow for a state income tax charitable deduction and others will not. Other states base their state income tax on the federal adjusted gross income or federal tax paid. Still other states have no income tax at all.
Does this transfer qualify as my required minimum distribution (“RMD”)?
- Yes. Once you reach age 70½, you are required to take minimum distributions from your retirement plans each year, according to a federal formula. IRA QCDs count towards your IRA RMD for the year.
Can my spouse also make an IRA Qualified Charitable Distribution, even if we are married and file jointly?
- Yes, every individual can use the IRA Qualified Charitable Distribution for up to $100,000 each year.
How do I know if an IRA Qualified Charitable Distribution is right for me?
You are at least age 70½, and:
- You do not need the additional income necessitated by your RMD, OR
- Your charitable gifts already equal 50% of your adjusted gross income, so you do not benefit from an income tax charitable deduction for additional gifts, OR
- You do not itemize deductions; OR
- You are subject to income phase-outs on your income tax deductions.
What is the procedure to execute an IRA Qualified Charitable Distribution?
- Your IRA administrator may have its own form to initiate a Qualified Charitable Distribution, and, if so, it is best to use the custodian’s form. If your provider does not have its own form, we have a sample letter that you can prepare and send to your IRA administrator to initiate a QCD.
Please contact us at (888) 736-9425 (toll-free) when you initiate the rollover so we can look for the check from your IRA administrator and issue the appropriate receipt.
More Questions and Answers on the Tax Implications of IRA Qualified Charitable Distributions
Can IRA Qualified Charitable Distributions be deducted as charitable gifts?
- No, but IRA Qualified Charitable Distributions are as valuable as deductible contributions because they are not subject to income tax, so no deduction is needed.
If the gift cannot be deducted, why would I want to take advantage of the opportunity?
- Many donors view the IRA Qualified Charitable Distribution as a way to manage their taxable income. The amount of the qualified IRA Qualified Charitable Distribution is excluded from income and can lower your Adjusted Gross Income (“AGI”) to:
- Save you from owing higher taxes on Social Security benefits and paying higher Medicare premiums;
- Make you less likely to be subject to the 3.8% tax on net investment income; and
- Reduce, if applicable, the amount of the “phaseout” for other deductions and credits.
Are there advantages with regard to Adjusted Gross Income, or AGI?
- Yes. Since charitable deductions are limited by AGI, the IRA Qualified Charitable Distribution allows donors to maximize charitable contributions while minimizing AGI. And the IRA Qualified Charitable Distribution may allow especially generous donors to benefit from contributions beyond their AGI limits.
I take the standard deduction, instead of itemizing, so I cannot deduct charitable donations. Does the IRA Qualified Charitable Distribution help me?
- Yes! Since the IRA Qualified Charitable Distribution counts toward your RMD and is not subject to tax, your benefit is equivalent to an income tax deduction even if you do not itemize your deductions.
If you have questions about the tax implications of IRA Qualified Charitable Distributions, please contact us.