Qualified Charitable Distributions for St. Jude
Next week, we will all gather for the 30th Annual St. Jude Trail Ride at Gardiner Farm on Underwood Mountain, south of Tuscumbia. There are varied reasons that thousands choose to attend. World-class music. The amazing food. Catching up with old friends and making new ones. I get giddy thinking about it.
BUT we can never lose sight of the primary purpose: RAISING MORE THAN $500,000 FOR ST. JUDE CHILDREN RESEARCH HOSPITAL. That will be added to the 4.5 million that has been raised over the years. We all take pride in reminding everyone that THIS 3-day event raises more money than any other event in the nation for St. Jude. As competitors, we aren’t about to give up that throne easily.
How is the money raised? Through donations which include gate admission, camping fees, merchandise sales, trail ride fees, concessions, the huge auction and cash donations. Many youngsters will bring jars of money from bake sales; lemonade stands and giving their weekly allowances and babysitting money to St. Jude.
(As a personal disclosure: the following is not to be taken as tax, legal or financial advice. Consulting with a properly certified professional is recommended.)
Benevolent individuals use different strategies for donating to 501c (3) charities such as St. Jude Children Research Hospital which is dear to all of us. One simple method is donating directly (often monthly) to help find a cure for childhood cancer. From a tax standpoint, the donation counts as a charitable deduction BUT over 90% of families use the standard deduction as opposed to itemizing.
This is where the Qualified Charitable Distribution comes in.
Here are the basics. (I will use St. Jude as the example of the 501c3.)
At age 73, individuals must take RMD’s (Required Minimum Distributions) from their qualified (pre-tax) retirement accounts. IRA’s, 401k’s, 403 b’s. 457’s, TSP’s. (Not Roth IRA’s since they are tax free, using after tax dollars). The withdrawal percentage starts at 3.8% for a 73-year-old and goes up slightly each year, 4.2% at 76 and 5% at age 80. This distribution counts as ordinary income and is taxed. Note the term “Required.” Go to IRS Publication 590-B.
EXCEPT when using a Qualified Charitable Distribution (QCD).
Only IRAs are eligible for QCD’s. 401k’s, etc. must be rolled into an IRA (which is easy to do.) There are some simple rules: the RMD must be sent to St. Jude on your behalf or send the check to you, made out to St. Jude which you will then forward. To qualify, you CANNOT receive the RMD money, or it will count as income. (Check with a CPA with questions).
A QCD is the only way for charitable giving without itemization. Some call it a “Tax Free RMD Donation.” The current IRS donation limit for a QCD is $108,000 per IRA individual (not per account). Remember: this is an income exclusion; not a deduction.
In a quirky age rule, the IRS allows individuals 70 ½ to make a QCD even though the new Required Minimum Distribution age is 73. Individuals younger than 70 ½ can do an IRA rollover from their 401k, 403b or TSP but aren’t eligible for a Qualified Charitable Distribution until later.
In addition to helping St. Jude, what are the benefits to a QCD? The distribution is NOT counted as income which could reduce taxes, keep Medicare premiums from going up and help with Social Security taxation. Every individual situation is different. This strategy isn’t for everyone.
The QCD seems to fit the following: Individuals who don’t need the RMD for daily living; are in a high tax bracket; want to help fund St. Jude Children Research Hospital.
Here is an actual example of one of my clients: I will call him John, age 78. John has over $900,000 in a fixed index annuity IRA. As a retired military contractor, John does not need all the money for living expenses and is in a high tax bracket. His RMD last year was about $38,000. He chose 6 different charities/501(c)3s to receive $28,000 of his RMD using a Qualified Charitable Distribution. The remaining $10,000 was sent to him. Six different checks were made out to the individual charities for John’s benefit. He only reported the $10,000 as taxable income which he used for home improvements.
Another option for later funding is to name St. Jude as the beneficiary of your account. It doesn’t matter if it’s funded with pre-tax or after-tax dollars. About 12 years ago, I sat up an annuity for a lady in the Florida panhandle who started with around $200,000. She had no family, so she listed St. Jude, her favorite charity, as the beneficiary. When she passed away, St. Jude received a check for over $262,000 and obviously paid no taxes as a 501 (c)3. By the way, St. Jude’s tax ID number is 62-0646012.
For any of you needing assistance with this or more information, contact me or your financial professional who can explain the pros and cons of using a QCD to help St. Jude. My email is coachbradbradford@gmail.com. Or go to my website coachbradford.com for additional contact information. I have assisted retirees and pre-retirees for over 31 years without charging a fee. I will be glad to sit down with you next week when we gather in the Shoals.
For those born before1956 and have retirement money that would benefit the kids at St. Jude, consider a Qualified Charitable Distribution. That would get us to the half-million dollar mark much quicker.
As always, thanks in advance for your Giving Heart.
We will NOT be denied. Too many young fighting warriors depend on US!