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Hello from the Peninsula Community Foundation! We hope tax season has treated you well! We know it's a busy time for our fund holders, and we've appreciated hearing from you in these early months. We're also encouraged by how many of you who are not yet fund holders have reached out about getting started with the community foundation. There are so many ways we can work together, ranging from helping you set up a donor-advised fund, so you can better organize your giving, to helping you and your family dig deeper into the community issues that interest you. In this issue, we are taking a step back to explain Required Minimum Distributions (RMDs) and Qualified Charitable Deductions (QCDs). We field so many great questions about how these two concepts work together in the context of IRAs and charitable giving. So, we are offering up a longer article to walk you through the points one at a time. |
You will also see that we are building on the theme of tax time as a great point in the year to solidify your charitable giving plans, and we are touching on three hot topics to keep you up to date on what's going on in the charitable giving world.
Thank you for the opportunity to work together! We are grateful!
Michael Monteith
CEO, Peninsula Community Foundation of Virginia
Thank you for the opportunity to work together! We are grateful!
Michael Monteith
CEO, Peninsula Community Foundation of Virginia
Boiling down the alphabet soup: What actually are RMDs and how do they relate to QCDs?If you get cross-eyed when you start reading about Required Minimum Distributions (RMDs) and Qualified Charitable Distributions (QCDs), you are not alone! And, given the December 2022 passage of SECURE 2.0 legislation, changes to RMD rules are especially important to understand if you are involved in charitable giving and have reached the age of 70 1/2.
What is an RMD in the first place? A little history may help here. RMDs date back to 1974 when the Employee Retirement Income Security Act (ERISA) was enacted. ERISA provided pension reform and created a retirement savings vehicle (through vehicles referred to as “qualified retirement plans”) that are allowed to grow tax-free while assets are in the plan. |
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By requiring that a taxpayer start taking distributions from qualified retirement plans when the taxpayer reaches a certain age, the United States government is able to start collecting tax revenue on these “required minimum distributions”.
Now here is where we get into the weeds. The distributed amount of the RMD is reported by the plan administrator on IRS Form 1099-R (but not if the RMD was “satisfied” by a Qualified Charitable Contribution [QCD]—see below!).
A taxpayer enters the amount of their RMD on Line 4B of the Form 1040 Federal income tax return, and, of course, the amount is included as taxable income for the year it was distributed. So, the net-net here is that RMDs add to taxable income. But if you make a direct transfer from your Qualified Retirement plan to your favorite charities, it is not treated as income and not taxed.
What types of accounts require RMDs?
How is the Required Minimum Distribution (RMD) amount calculated?
A qualified retirement account’s entire balance is considered for calculating an RMD calculation, although of course only a fraction of the balance must be distributed each year. Unfortunately, the distribution amount is not easily or consistently determined. This contributes to some retirees' confusion about RMDs and the requirements. Online RMD calculators can be found here and your retirement account administrator can provide guidance.
How charitable taxpayers can check the RMD box with a QCD
Here’s where the QCD comes in (finally!) Now, armed with an understanding of how the RMD rules apply to your situation, you can begin to see how the QCD can provide a huge benefit if you own IRAs. QCDs are truly taxpayer and charity-friendly vehicles.
For starters, you can start making QCDs at age 70 ½–well before you’ve reached the age when you’re required to take RMDs. A QCD happens when you direct a distribution from an IRA of up to $100,000 annually (or $200,000 if you file tax returns jointly) to one or more qualifying charitable organizations, including a designated, field-of-interest, or unrestricted fund at the Peninsula Community Foundation. While the QCD is itself not tax deductible per se, the overall effect of the QCD is to lower your taxes because the QCD counts toward your RMD but it is not included in your taxable income.
The bottom line? If you have reached the age of 70 ½, own an IRA, care about charitable causes, and don’t need a full RMD income to cover your living expenses, reach out to us at the community foundation to learn how a QCD could work beautifully for you.
Now here is where we get into the weeds. The distributed amount of the RMD is reported by the plan administrator on IRS Form 1099-R (but not if the RMD was “satisfied” by a Qualified Charitable Contribution [QCD]—see below!).
A taxpayer enters the amount of their RMD on Line 4B of the Form 1040 Federal income tax return, and, of course, the amount is included as taxable income for the year it was distributed. So, the net-net here is that RMDs add to taxable income. But if you make a direct transfer from your Qualified Retirement plan to your favorite charities, it is not treated as income and not taxed.
What types of accounts require RMDs?
- For 2023, account owners aged 73 and older who participate in qualified retirement plans such as these are subject to RMDs:
- Traditional IRA
- Simplified Employee Pension (SEP)
- SIMPLE IRA
- Employer-sponsored 401(k), 430(b) or 457
How is the Required Minimum Distribution (RMD) amount calculated?
A qualified retirement account’s entire balance is considered for calculating an RMD calculation, although of course only a fraction of the balance must be distributed each year. Unfortunately, the distribution amount is not easily or consistently determined. This contributes to some retirees' confusion about RMDs and the requirements. Online RMD calculators can be found here and your retirement account administrator can provide guidance.
How charitable taxpayers can check the RMD box with a QCD
Here’s where the QCD comes in (finally!) Now, armed with an understanding of how the RMD rules apply to your situation, you can begin to see how the QCD can provide a huge benefit if you own IRAs. QCDs are truly taxpayer and charity-friendly vehicles.
For starters, you can start making QCDs at age 70 ½–well before you’ve reached the age when you’re required to take RMDs. A QCD happens when you direct a distribution from an IRA of up to $100,000 annually (or $200,000 if you file tax returns jointly) to one or more qualifying charitable organizations, including a designated, field-of-interest, or unrestricted fund at the Peninsula Community Foundation. While the QCD is itself not tax deductible per se, the overall effect of the QCD is to lower your taxes because the QCD counts toward your RMD but it is not included in your taxable income.
The bottom line? If you have reached the age of 70 ½, own an IRA, care about charitable causes, and don’t need a full RMD income to cover your living expenses, reach out to us at the community foundation to learn how a QCD could work beautifully for you.
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‘Tis the season: Why tax time is often the best time to get serious about your charitable plansThough often unappreciated, the annual passage of tax season has benefits.
For one, it offers some finality to the prior year in that we finally know if we owe or are due a refund. For example, for the 2021 tax year, the IRS processed 88 million refunds averaging $3,039 each. Simultaneously, filing a 2022 tax return often comes with finalizing quarterly tax estimates for 2023, which many people use to build a framework for current-year spending. Fortunately, charitable giving ranks high on many “how to use your refund” lists. Whether you have “bonus” money in the form of a refund or gain some peace of mind by knowing your upcoming tax obligations, giving intentionally and strategically always helps that gift go further. |
Unfortunately, strategic and intentional giving may get lost when gifts to charity are made through a quickly mailed check or an online payment in response to a phone solicitation, television ad, mailer or online advertisement. The community foundation, however, offers remedies for this!
Lean into intentionality
Many donors give to the same causes every year. Causes tied to faith, health and community rank high among charitable giving trends. Recently, gifts involving food or home insecurity, natural disasters and international conflicts have become increasingly popular.
Most important is to give to causes that are near and dear to you and for which you can see the ways your giving is contributing to meaningful, positive change in the lives of people in our community. And if you can add to your current list of beneficiary organizations to achieve meaningful impact, all the better.
The Peninsula Community Foundation is a knowledgeable source of ideas, best practices, and data-driven approaches to helping you measure your impact. Our team can be especially helpful if you have a cause in mind but may not immediately have an organization name or local chapter to support. Our team has vetted and even pre-qualified many worthy organizations, and as a bonus, offers security against sending gifts to scammers or bad actors who often start or perpetuate their deceit by using familiar-sounding names of well-known organizations or websites.
Level up your strategy
Now that you’ve identified budget targets for your charitable giving and have a strong sense of the causes you’d like to support, structuring your gift for maximum impact and tax savings should be a top priority.
If you already have a donor-advised fund at our community foundation, you know that this vehicle has many benefits, including ready access to our staff of experts; the convenience of jumping online to supporting favorite causes from your fund; the ability to maximize a gift with accompanying tax benefits; and even the opportunity to schedule a gift to coincide with the occasional matching campaign hosted by a favorite charity. With full tax deductibility in the year of the contribution, donor-advised funds are an ideal way to “mentally offset” current year tax estimates that become known in April. If you don’t yet have a donor-advised fund at the Peninsula Community Foundation but are considering it, this may be the perfect time to jump in.
With these tips in hand, and with our help, you can better plan for the tax year ahead, knowing that causes important to you, will benefit from your generosity.
Unfortunately, strategic and intentional giving may get lost when gifts to charity are made through a quickly mailed check or an online payment in response to a phone solicitation, television ad, mailer or online advertisement. The community foundation, however, offers remedies for this!
Lean into intentionality
Many donors give to the same causes every year. Causes tied to faith, health and community rank high among charitable giving trends. Recently, gifts involving food or home insecurity, natural disasters and international conflicts have become increasingly popular.
Most important is to give to causes that are near and dear to you and for which you can see the ways your giving is contributing to meaningful, positive change in the lives of people in our community. And if you can add to your current list of beneficiary organizations to achieve meaningful impact, all the better.
The Peninsula Community Foundation is a knowledgeable source of ideas, best practices, and data-driven approaches to helping you measure your impact. Our team can be especially helpful if you have a cause in mind but may not immediately have an organization name or local chapter to support. Our team has vetted and even pre-qualified many worthy organizations, and as a bonus, offers security against sending gifts to scammers or bad actors who often start or perpetuate their deceit by using familiar-sounding names of well-known organizations or websites.
Level up your strategy
Now that you’ve identified budget targets for your charitable giving and have a strong sense of the causes you’d like to support, structuring your gift for maximum impact and tax savings should be a top priority.
If you already have a donor-advised fund at our community foundation, you know that this vehicle has many benefits, including ready access to our staff of experts; the convenience of jumping online to supporting favorite causes from your fund; the ability to maximize a gift with accompanying tax benefits; and even the opportunity to schedule a gift to coincide with the occasional matching campaign hosted by a favorite charity. With full tax deductibility in the year of the contribution, donor-advised funds are an ideal way to “mentally offset” current year tax estimates that become known in April. If you don’t yet have a donor-advised fund at the Peninsula Community Foundation but are considering it, this may be the perfect time to jump in.
With these tips in hand, and with our help, you can better plan for the tax year ahead, knowing that causes important to you, will benefit from your generosity.
Unfortunately, strategic and intentional giving may get lost when gifts to charity are made through a quickly mailed check or an online payment in response to a phone solicitation, television ad, mailer or online advertisement. The community foundation, however, offers remedies for this!
Popular topics: Banking fall out, proposed legislation, and new stats on volunteerismNot a day goes by without our team talking with fund holders (and potential fund holders!) about philanthropy in our community and all the ways charitable giving can make life better for everyone who lives here. Recently, we’ve noticed an uptick in interest on a few important topics.
Ripple effects of banking’s bumpy road Understandably, our team has fielded a lot of questions from fund holders working with their advisors about transferring bank and especially tech stocks to their donor-advised or other funds at the community foundation. Although the current market climate may be rough, we are nevertheless encouraged by evidence suggesting that technology is increasing the opportunity and efficiency of charitable giving overall, and certainly we are hearing about (and talking with) more and more donors who are deploying their business and financial success toward charitable initiatives. Silver linings do indeed appear to be a real thing! |
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Tax perks on the horizon?
It appears that there may be renewed hope for non-itemizers to be able to deduct at least a portion of their charitable gifts. As you and other charitable-minded taxpayers are undoubtedly aware, because of the higher standard deduction passed as part of the Tax Cuts and Jobs Act of 2017, tens of millions fewer households itemized their deductions, leaving many nonprofits with shortfalls in projected donations. A “universal charitable deduction” may be back in play. Time will tell if congress is willing to encourage charitable giving through the tax code.
Generational factors can impact charitable behavior
Many fund holders at the community foundation regularly involve their children and grandchildren in philanthropic activities, including attending community foundation events together and meeting with our team to explore giving opportunities. It may interest you (but it may not surprise you) to learn that studies continue to point out generational differences in approaches to charitable giving. Recently, for example, research has shown that volunteerism and related behaviors are shifting, making it difficult for some charities to build and maintain volunteer programs. If you are looking to become a volunteer, let us know. We can probably connect you with an area you would enjoy participating with.
We look forward to working with you and your family this spring to set in motion your charitable goals for 2023! Please reach out anytime.
It appears that there may be renewed hope for non-itemizers to be able to deduct at least a portion of their charitable gifts. As you and other charitable-minded taxpayers are undoubtedly aware, because of the higher standard deduction passed as part of the Tax Cuts and Jobs Act of 2017, tens of millions fewer households itemized their deductions, leaving many nonprofits with shortfalls in projected donations. A “universal charitable deduction” may be back in play. Time will tell if congress is willing to encourage charitable giving through the tax code.
Generational factors can impact charitable behavior
Many fund holders at the community foundation regularly involve their children and grandchildren in philanthropic activities, including attending community foundation events together and meeting with our team to explore giving opportunities. It may interest you (but it may not surprise you) to learn that studies continue to point out generational differences in approaches to charitable giving. Recently, for example, research has shown that volunteerism and related behaviors are shifting, making it difficult for some charities to build and maintain volunteer programs. If you are looking to become a volunteer, let us know. We can probably connect you with an area you would enjoy participating with.
We look forward to working with you and your family this spring to set in motion your charitable goals for 2023! Please reach out anytime.
This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice.
