Fund the work you believe in with an IRA Charitable Rollover

by Rev. Bill Gruenewald

Save on taxes by funding Kingdom work

The best way to maximize most retirement accounts, like a traditional IRA, is to allow it to mature and accumulate earnings. However, at age 72 it is mandatory for a person to take a Required Minimum Distribution (RMD), which is taxable.

The best way to avoid these high taxes on your Required Minimum Distribution is to donate your RMD to a qualified charity that you trust.

This activity is called an IRA charitable rollover.

The Tennessee Baptist Foundation’s expert team can serve you and your financial planner by establishing a charitable rollover that will fund work worthy of your finances while you save on taxes.

You can invest in a foundation that includes church evangelism projects, college and seminary scholarships, and endowment funding for churches and associations across our state.

What is an IRA Charitable Rollover?

Traditional IRAs now require you to make RMDs once you reach age 72. Because you did not pay federal income tax when you contributed the money to your account, you need to pay tax when you withdraw it. However, you can avoid the tax on that distribution by making a donation directly from your IRA to your church or any charity. That’s an IRA “charitable rollover,” and is also called a qualified charitable distribution (QCD). 

So instead of paying tax on that money, it goes directly to a cause you believe in. This also has can reduce the impact of some tax credits and deductions like Social Security and Medicare.

The IRA Charitable Rollover was first made available as part of The Pension Protection Act of 2006 (PPA) and was permanently extended in December 2015.

How Qualified Charitable Distributions Work

You must be at least 70 ½  years old to make a QCD, and the maximum annual exclusion for QCDs is $100,000. You can deduct up to $100,000 in charitable contributions from your income taxes. If you file a joint return, you and your spouse each have a $100,000 exclusion limit. You will need to pay income tax on any distributions above the exclusion limit. Note also that it is possible for a QCD to cover your entire RMD.

The donation must be made directly from your IRA to a qualified charity. The money never touches any other of your personal accounts. A charity can qualify for a tax-deductible, qualified charitable distribution if it is a 501(c)(3) organization. Private foundations, donor-advised funds and supporting organizations do not qualify.

How is the QCD Reported on Your Taxes?

You will report a QCD the same way you would report a normal distribution from your IRA. Use Form 1099-R for the tax year that you made the distribution

On your Form 1040, report the total amount of the QCD on the line for IRA distributions. If the amount covered your entire RMD, enter a zero on the line asking for the taxable amount.

If you made a QCD but it did not cover your entire RMD, you will need to make an additional distribution. You will need to file Form 8606, Nondeductible IRAs, to report showing that you made this additional distribution.

In Summary

A QCD, also called an IRA charitable rollover, allows you to lower your tax bill if you contribute money directly from your traditional IRA to a charity. The charity needs to be a 501(c)(3) organization, and you can deduct up to a limit of $100,000. You have the same personal limit if filing a joint return. You will need Form 1099-R to report this distribution. You will also need to file Form 8606 if your QCD doesn’t cover your entire RMD.

The Tennessee Baptist Foundation team will give expert and easy-to-follow hands-on assistance in setting up your charitable rollovers that will continue to fund outreaches throughout communities across our beautiful state.


Ready to get started?

You can reach us via phone at (615) 371-2029, email us at tbf@tnbaptist.org, or fill out this form.

Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any trans