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Gifts To Charity Can Qualify As Required Minimum Distributions (RMDs)

Gifts to Charity Can Qualify As Required Minimum Distributions (RMDs)

In a recent blog, we talked about the tax-savvy option of donating appreciated stock to your favorite charity instead of writing a check.

You may also have another option if you’d like to be philanthropic—and save some money on taxes at the same time: You could wait and see if Qualified Charitable Distributions (QCDs) from Individual Retirement Accounts (IRAs) are once again allowed in 2015. If you must take Required Minimum Distributions (RMDs) from your IRA account, you can sidestep some or all of the taxes on these distributions by donating them to charity. The caveat here is that QCDs can only be done from an IRA. This tax exemption doesn’t apply to other types of retirement accounts like 401(k)s and 403b(s).

The requirements for making charitable gifts from IRAs are:

  • Distributions must be made directly from an IRA to a charity.
  • Distributions must occur after the IRA owner has turned age 70 1/2.
  • Taxpayers are limited to up to $100,000 of QCDs in a single tax year, but that is a per-IRA-owner limit. Spouses could potentially contribute an additional $100,000 each to charities.

At this point, it’s anyone’s guess whether QCDs will once again be permitted in 2015. However, recent history suggests that we might not know until the late in the year. Last year, the Tax Increase Prevention Act of 2014 was signed into law by the president on December 19, 2014, and was only valid through December 31, 2014.

Both strategies—donating appreciated stock and making QCDs—are likely to be more tax-efficient for individuals than outright gifts of cash. If you need to choose between the two options, you should consult your tax advisor. Generally speaking, gifts of appreciated securities are likely to be more favorable than QCDs due to a “double tax” benefit: These contributions provide an income-tax deduction and also avoid taxes on the associated capital gains.

However, there are some instances when it might be more favorable to elect the QCD over gifting appreciated securities:

  • You have no appreciated securities to donate—or you have appreciated securities but haven’t held them for a minimum of 12 months. In that case, the tax deduction will be limited to your cost basis and not the fair market value. In addition, there are times when a receiving charity isn’t set up to receive gift contributions from certain mutual fund families.
  • You only claim the standard deduction. Donating appreciated securities is most effective when you itemize.
  • The capital gains tax on appreciated securities wouldn’t apply because you are in low tax bracket, or there’s a high likelihood that the securities will receive a step-up in basis following a death.
  • Your income is extremely high relative to deductions. Your itemized deductions may be partially phased out as a result of the 80%-of-itemized-deductions cap.
  • Your charitable gift is large. If your appreciated securities gift is valued at more than 30% of your Adjusted Gross Income (AGI), your gift won’t be deductible due to annual charitable contribution limitations and a QCD might make more sense.
  • Your gift is quite small. Sometimes the dollar amounts involved simply don’t make it worthwhile to go through the hassle of donating appreciated securities. The QCD might be easier.

As always, it’s important to discuss gifting strategies with your Wealth Advisor and tax professional before you make any final decisions.

 

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested.  Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic.  This information is current only as of the date on which it was sent.  The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic.  Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

This information is based on our understanding of current tax legislation.  Congress may change tax legislation at any time.

Please remember RegentAtlantic does provide tax advice.  Please consult your tax advisor before implementing any of the strategies discussed in this article.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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