More and more donors are learning that using their IRAs to give to their favorite charities with a QCD is beneficial because they are making meaningful contributions while avoiding paying taxes on their IRA distributions.
As your charity receives more of these types of gifts, there are some key challenges and rules to be aware of:
- Required minimum distribution (RMD) rules must be followed, and the gift completion date matters! At 73 years of age, every IRA owner must take their RMD each year or face a 50% penalty if they do not withdraw the funds. If they choose to give all or a portion of this to charity (within the maximum allowable gift limits), the QCD must be documented and the gift completed. The QCD is not considered completed until the funds clear the charity’s bank. In other words, the charity must receive the funds, and they must be credited to their bank account.
- Some donors will want to use the check-writing feature on their IRA account and write the QCD check to charity themselves. When making a charitable gift by check, the gift completion date is based on the postmark on the envelope. As noted, QCD gifts are different. For example, if the RMD is $10,000 and the donor writes a check and mails it on Dec. 31, the donor is liable for a tax penalty of $5,000 ($10,000 x 50%) because the check will arrive after Jan. 1 and the funds will be credited thereafter. Even a check delivered to the charity will not meet the bank account deadline.
- Much like gifts of securities, QCD funds are received directly from the IRA administrator, and charities often don’t know who the donor is. Charities need every opportunity to thank their donors and will need to acknowledge the gift. When marketing QCDs and having conversations with donors, it’s important to remind them to notify you of their IRA gifts.
As QCDs continue to grow as a popular giving option, let’s make sure we find ways to let our donors know the rules and, most importantly, to thank them for their generosity.
Joe Chickey, MBA, CFP, is a senior vice president and senior consultant who advises clients on planned giving marketing. You can connect with Joe via LinkedIn or at joe.chickey@sharpegroup.org.
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