Are You Gifting the Right Assets?

You, like many of our clients, may have a long history of annual charitable giving. But are you gifting with the right assets? Many of our clients currently drawing down their retirement accounts enjoy favorable tax treatment by gifting to charities directly from their IRAs through what’s called a Qualified Charitable Distribution, or QCD. A QCD allows individuals who are 70½ years or older to donate up to $100,000 per year tax free to one or more charities directly from their IRA required minimum distribution.

As you may be aware, starting April first of the year after you turn 70½, the IRS dictates a specific amount each year that you must withdraw from your IRA. Some are surprised to realize that this required minimum distribution, or RMD, is taxed as ordinary income when withdrawn and placed in their personal account. This can be particularly frustrating when the required amount is larger than what you feel you need. However, for individuals intending to gift charitably anyway, RMD amounts up to $100,000 per year can pass tax-free IF (and let me emphasize this point) it is sent directly from the IRA administrator to a qualified charitable organization.

The resulting tax savings is simple: the contribution is subtracted from the distribution which would normally become part of your taxable income. Only that portion of the RMD that you took personally would be subject to income tax. The savings would be the amount of the gift multiplied by your combined Federal and State tax bracket. This can become particularly impactful in the calculation of Medicare costs and Social Security taxability. But do check first with your CPA or tax advisor to be sure a QCD is the best “fit” for you in terms of your overall tax picture.

At Segall Bryant & Hamill, we are proud to help support philanthropic goals as part of our stewardship of our clients’ assets. If you’d like to discuss QCD gifting with us, please give us a call.