CHARITABLE GIVING HELPS THE N-SSA
How to use your IRA account to support the N-SSA and minimize your taxes.
By Wayne Jordan, Chiswell’s Exiles, N-SSA Charitable Giving Officer
Several Skirmishers have contacted me recently to suggest covering this edition’s topic. As many of our members grow older they are sometimes surprised to find that they are pushed into higher tax brackets by their pension and IRA income than they were in when they were working. The US Congress has recently passed a law to make permanent a method to help taxpayers use their IRA (Individual Retirement Account) to both support their favorite charity and lower their income taxes. The benefits can be very significant for some people.
First, in this litigious society, I must explain that the N-SSA is not staffed with lawyers to provide tax and estate planning advice and does not purport to do so nor accept responsibility for doing so. Your individual situation is best reviewed by your own lawyer, tax advisor, financial planner, etc. I am providing information that I believe to be from reliable and reputable sources, and which is easily available to anyone who would like to confirm it with their own research.
Now, back to our regularly scheduled programming.
Here is how it works. Upon reaching the age of 70 1/2, holders of IRA accounts (except Roth IRAs) must withdraw a certain amount of the money in their account(s) each year and pay taxes on it, or face a severe penalty. This withdrawal, known as an RMD (Required Minimum Distribution) is taxable at normal income rates. And in many cases this extra infusion of income pushes the taxpayer up into higher tax brackets and even into additional tax surcharges that became part of the tax code for higher income taxpayers a few years back. That may not sound like it would affect you, but you’d be surprised how easy it is to be pushed into these higher tax brackets, especially if in one year you sell a piece of real estate, or sell a long-held stock in your portfolio, or any of many other financial events that cause your taxable income to spike. In short, you may find that you don’t need, or even want, the income that you are forced to take from your IRA in any given year.
Now, the solution. In year-end legislation, the Consolidated Appropriations Act of 2016 finally made permanent Qualified Charitable Distributions (QCDs) from individual retirement accounts. A QCD of up to $100,000 can be directly transferred to a qualified charity, like the N-SSA, from your tax deferred IRA. In this case, you avoid the income tax you would have had to pay to the federal government and many state and local governments on your required annual withdrawal. With our complicated tax code, avoiding these taxes could also avoid numerous other tax issues such as:
Avoiding a rise in the income taxes on your Social Security benefits
Avoiding an increase in your Adjusted Gross Income that would cause your itemized deductions to be reduced.
Avoid an increase in your Medicare premiums
Avoid a limitation on the amount of charitable deductions you can use on any year’s tax return to reduce your taxes.
Importantly, QCDs automatically satisfy required minimum distributions (RMDs) for the year when the QCD is made. That’s a real advantage for a charitably minded IRA owner who doesn’t need RMDs to live on.
There are a few rules that must be followed very carefully in order for this strategy to work. It cannot be overemphasized that the donation must be made directly from your IRA to the charity without ever passing through your hands or going through any other bank or brokerage account that you own. You must not make any such donation before the day you turn 70 ½. You may use any portion of your RMD that you choose for the QCD. You must receive a letter from the qualified charitable organization that you donate to which acknowledges your donation, which the N-SSA will be happy to provide.
Unfortunately, you cannot make your QCD to a donor advised charitable fund. But just about any other qualified charity is acceptable. QCDs may be made from any IRA or individual retirement annuity, but not from a simplified employee pension, a simple retirement account or an inherited IRA.
To make a contribution, instruct your IRA trustee or custodian to make a transfer from the IRA directly to NORTH-SOUTH SKIRMISH ASSOCIATION. Our tax ID is 52-1169278. Many trustees and custodians already have forms and procedures in place to make this transfer. It won’t qualify if the trustee or custodian makes the mistake of putting IRA money in a non-IRA account of yours as an intermediate step. It won’t qualify if the check is made out to you. The law doesn’t provide a way to correct mistakes. The Internal Revenue Service has said that a check from an IRA may be made payable to a charitable organization described in section 408(d)(8) and delivered by the IRA owner to the charitable organization. You can mail the check directly to our Paymaster, Jim Baird, at 315 Dogwood Lane, Christiansburg, Va 24073, or, if you prefer, to the official address of the N-SSA which is 480 Chalybeate Springs Road, Winchester, VA 22603. Please attach a note explaining what these funds are from, and if you are designating them for the general fund or for any specific purpose. Jim will send you the necessary acknowledgement letter.
With the constantly changing tax code, it is always a good idea to review your options to minimize your taxes. If you are 70 ½ or older, or even approaching that age, you might want to investigate the option of using your IRA for a QCD. If it makes sense for you, please consider the N-SSA as a recipient for your QCD. If you have any further questions about how to do this, please feel free to contact Wayne Jordan at 703-407-2445 or wvjordan@aol.com, and I’ll try to help you get the answers that you need.
Disclaimer: Yep, there are always disclaimers when it comes to financial advice. I am not a licensed professional and am only passing on information about things that I have experience with. Always use your own good sense and/or consult with professionals whenever you are making financial decisions. That said, if anyone would like to discuss any of these issues with me further, or if you have suggestions for my future articles about giving, I can be reached at wvjordan@aol.com.