A popular option for donating to charities, such as LPEF, is through a qualified charitable distribution from an Individual Retirement Account.
In general, a taxpayer is taxed on distributions from an IRA, regardless of whether the distribution is made to the taxpayer or someone else. However, an exception applies to distributions for charitable purposes. Up to $100,000 per year of IRA distributions made directly to charitable organizations are excluded from the IRA owner’s gross income for the tax year. A distribution qualifies for this exclusion if it is:
- Made from an IRA (other than an ongoing SEP or SIMPLE IRA);
- If the IRA is maintained for the benefit of an individual who has attained age 70½; and
- If it is paid directly to a qualified charity such as LPEF (for example, a check made out by the IRA to LPEF and delivered by the IRA owners to LPEF qualifies). (*see disclaimer below)
The qualified charitable distribution can satisfy all or part the amount of the benefactor’s required minimum distribution from an IRA. These distributions are limited to the amount that would otherwise be taxed as ordinary income. As stated above, the maximum amount that can qualify is $100,000 per calendar year in total (whether made to one or more charities). For benefactor’s filing jointly, both spouses can make a qualified charitable distribution for up to $100,000 each annually.
While the distribution is free from federal tax liability, and thus may lower taxability of other income or benefits, such as Social Security, state taxes may still apply. In certain states, including Wisconsin and Minnesota, these distributions are free from state tax liability. (*see disclaimer below)
For benefactors who don’t have an IRA, but have another qualified retirement plan like a 401(k), LPEF can provide the benefactor with information on how to establish a fee-free vehicle to still take advantage of this charitable roll-over opportunity through Trust Point’s Philanthropic Conduit IRA. (*see disclaimer below)
For more information on potential distributions from an IRA or other qualified retirement plan, please contact Executive Director David Stoeffler at 608-787-0226 or email: firstname.lastname@example.org
DISCLAIMER: It is our policy to remind benefactors that LPEF does not provide tax, legal, financial or related advice concerning gifts, and encourages benefactors to seek out their own personal advisers on such matters.