Implementing Qualified Charitable Distributions (QCDs) Effectively
If you have reached the magic age of 70.5 and you give faithfully to organizations you care about, you probably already know about Qualified Charitable Distributions (QCDs). These QCDs can save you several thousand dollars in taxes and have become very popular since legislation in 2017 increased the standard deduction significantly.
They can save plenty of money and make a lot of sense, but many people fail to set them up because they seem too cumbersome. Others make these distributions from their IRA every year, but the paperwork required is significant and it is quite a hassle.
The purpose of this blog is to review some basic implementation strategies so that the organizations you love receive these distributions, while you are not bogged down with unnecessary paperwork. Here are some of the more common strategies:
Annual giving versus monthly giving. Many people who give to the church have given monthly for their entire lives, so the shift to making a one-time annual contribution can be tough. Also, some churches rely on more regular giving to help balance the cash flow needs for their budget.
How can you send your tithe to the church when they prefer to receive it, while still receiving the tax benefits QCDs offer, and keeping paperwork to a minimum?
Oftentimes, we advise clients to set up automatic monthly contributions to the church or other charities. You can determine when these go out every month, and can easily change the monthly amount in the future, often without completing any additional paperwork. You can also stop this contribution in the future with a simple call to your advisor. This method helps you budget for your charitable giving in the same way that you budget for other cash flow needs.
Delivery of the gifts.
Typically, with QCDs, the custodian of your IRA will cut a check and mail it to the nonprofit. This process can be easy, but it could also be challenging for a couple of reasons. First, if the check is going to a large national nonprofit, then it is possible that the gift will not be routed to the right place or that it might not be attributed to the correct donor. Secondly, many donors appreciate the satisfaction of hand-delivering or mailing gifts. It seems more real and more personal.
So what should you do? The answer is simple. You can instruct your IRA custodian to make the check payable to the nonprofit and to mail the check to you at your home address. Then, when you receive the check, you can document that you received it and forward it to the nonprofit entity. This allows you to have clarity knowing that the nonprofit receives the gifts, and also gives you the satisfaction of sending it directly to them.
QCDs for smaller gifts.
The problem here is that oftentimes custodians require substantial paperwork to generate qualified charitable distributions. Hence, smaller gifts can be kind of a pain. Here are two possible solutions. First, some custodians will give you a checkbook and allow you to write gifts directly from your IRA to the nonprofit. This may or may not be available, depending on your custodian. Another option is to set up automatic contributions for the smaller gifts. For instance, we have clients who like to give somewhere between $250 and $1,000 once a year to a number of charities. We set up these distributions to go out automatically annually each November. We then review the list prior to each November to make any adjustments or changes. This allows the smaller gifts to go out annually without completing new forms.
Yes, it is possible to give in a way that saves you money on your taxes and also does not seem burdensome. Should you have any additional questions or comments, we are always happy to have a conversation.
We hope you benefited by reading this blog. To meet with an advisor to discuss these strategies in more detail, click here to schedule an initial conversation. We have also created a free guide for you to download here: 5 Tax Strategies Often Overlooked
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.