Supporters of Catholic causes can ensure their favorite organization continues fulfilling its missions by directing distributions from their tax-deferred retirement accounts to an endowment or donor designated fund managed by the Catholic Foundation of Eastern Pennsylvania. This is a win for both the Catholic organization and the donor/taxpayer. With qualified charitable distributions, they can begin as young as 70 1/2 years old.
What Are Qualified Charitable Distributions?
If you are age 70½ or older, you can use your IRA to make a gift or Qualified Charitable Distribution (QCD) directly to an endowment fund with the Catholic Foundation without having to pay income tax on the gift. If you are 72 or older, you may make a QCD from your retirement accounts to satisfy all or part of your IRS required minimum distribution (RMD). Those accounts include 401ks and various IRAs. When an individual takes the RMD as income, it will be taxed as ordinary income at your marginal rate.
A QCD eliminates or reduces the tax impact of RMD income. This is not the case with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution. The funds would be counted as taxable income even if you later offset that income with the charitable contribution deduction.
With recent tax law changes and pending legislative changes, all individuals should consult their tax advisers to determine what is the best option for them when considering a QCD from a 401k or IRA account to benefit their favorite Catholic organization.
Key Points to Remember About QCDs and RMDs
- You must be at least 70½ years old or older at the time you request a QCD. If you process a distribution prior to reaching age 70½, the distribution will be treated as taxable income.
- The QCD must be paid directly to the charity. A donor may request their 401k or IRA custodian to issue a check in the Catholic Foundation’s name and note the specific fund it should be directed. (i.e., Catholic Foundation of Eastern Pennsylvania for the St. John Doe Endowment Fund).
- If the distribution is paid to the individual and then they write a check to a charity, it will still be counted as income and taxed.
- For a QCD to count toward your current year’s RMD, the funds must come out of your IRA by your RMD deadline. The deadline is generally December 31 each year.
- $100,000 is maximum total amount allowed per individual for an QCD from an IRA account in a calendar year.
Interested in starting or contributing to an endowment fund using a QCD?
Please contact Pete Waldron, President, Catholic Foundation, 610-554-1941 or [email protected] to find out more about using a QCD to start or contribute to the Catholic causes you care about.