Learn about RMDs and charitable contributions

If you’re age 70½ or older, you can make a tax-free transfer of up to $100,000 from your IRA to charity each year. But what about donor-advised funds?

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Talli Sperry: We have a question from Daniel, and he’s asking, “Can I put my RMD directly into a donor-advised fund, and how does that work?”

Jane Greenfield: Well today, no. Do you want to start with that, and then I’ll pile on at the end?

Kevin Wick: Yes, certainly. There is a feature under the tax code that was adopted just a few years ago that allows you to put some or all of your RMD, depending on what level that distribution is. An RMD is a required minimum distribution that individuals who have an IRA, a traditional IRA as opposed to a Roth, if they reach the age of 70 1/2, then the IRS requires that a certain amount of that account be withdrawn each year. That’s the required minimum distribution.

And Congress has adopted what’s known as the qualified charitable distribution, QCD, and that is an opportunity if you’re of that age and you’re required to take money out, you can direct up to $100,000 to a qualified charity each year; and that has to be done from your IRA provider directly to the charity in order for this to qualify in the most tax-efficient way. And in doing so, that money that goes to the charity, then the individual no longer has to claim that as income.

Now you don’t get a charitable deduction for that because you haven’t paid tax on the money that came out, but that is a very efficient way to utilize those dollars if you happen to be in that kind of situation.

Jane Greenfield: Now, unfortunately, although donor-advised funds are charities, it does not include donor-advised funds today. And we get a lot of questions from our donors on that. In fact, if you go to the Vanguard Charitable website and you go down to the bottom of the home page on the left.

Talli Sperry: And [the link to the Vanguard Charitable is in in the] Resource widget.

Jane Greenfield: That’s the green Resource widget, you’ll see that we just recently did an article on RMDs on this very topic because we do get so many questions.

The good news is the conversation is going on in Washington as to whether donor-advised funds should be included going forward. In fact, there was a recent act that was introduced called the Charity Act, and that’s one of the key elements of the act, to include DAFs going forward. So we’re hopeful.

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