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IRA Charitable Rollover Distribution to Create a Designated or Scholarship Fund

When available, donations from IRAs are one of the best charitable giving tools after tax reform. They completely avoid the standard deduction and give the donor a full dollar-for-dollar benefit.

For federal tax purposes, qualified distributions up to $100K from an IRA made directly to charitable organizations are excluded from the owner’s gross income, if the distributions are made on or after the date the IRA owner reaches age 70½. These are often referred to as Qualified Charitable Distributions (“QCDs”). Per IRS regs, a QCD cannot be given to a private foundation or a DAF. However, they can be given to a Designated or Scholarship Fund created at the FM Area Foundation.

Taxpayers can direct the IRA from which they are taking required minimum distributions (“RMDs”) to pay a portion or all of that RMD, not to exceed $100K/year, to a qualified charity. The donation must be made directly from the IRA custodian to the charity. The funds cannot be distributed to the plan holder and then donated. Thus, every dollar of the QDC will provide a tax benefit by reducing taxable income.

If a taxpayer is converting traditional IRAs to Roth IRAs, an additional solution would be to leave some amount in a traditional IRA for charitable giving. May also be able to roll over funds from a qualified plan into an IRA.