If you are charitably inclined and you qualify under the IRS rules, you might be able to implement a technique using your IRA. If you are at least 70 ½ years old with a traditional IRA, you can direct your IRA custodian to donate up to $111,000 by December 31, 2026, in the form of a check directly from your IRA account to Brightway. This direct transfer, called a Qualified Charitable Distribution (QCD), avoids having to recognize the transferred assets in your gross income on your tax return.
Generally, when you take an IRA distribution and make an equivalent gift to charity, the distribution is taxable income to you, and you receive a charitable deduction for the gift. The charitable deduction you receive may not totally offset the taxes you must pay for receiving the IRA distribution. Direct IRA QCD’s to charities are not tax deductible as donations, but correspondingly, they are not treated as income received by you, so they do not trigger higher income taxes and other negative consequences (e.g., reduced social security benefits).
To use the IRA QCD, you must be at least 70 ½ years of age and you must direct your IRA custodian to make the contribution directly to Brightway, which includes directing the IRA custodian to send you a check made payable to Brightway, which you would send to Brightway prior to year-end. The charity must be a “qualified” charity. Most public charities, like Brightway, are qualified charities, and certain contributions to private foundations and other charities will also be treated as qualified. The IRA QCD can be used to satisfy a portion or all of your required minimum distribution.
Note, also, that naming Brightway as the designated beneficiary of your IRA or retirement plan at your death is a tax-efficient way to carry out your charitable wishes. While individual beneficiaries must pay income taxes on distributions they receive (other than distributions from Roth IRAs), such distributions to Brightway will be income tax-free, allowing more of your estate to go to charity.
_____________________
Patricia C. Marcin is a partner at the law firm of Rivkin Radler LLP. She concentrates in trusts, estates, and tax law. She can be reached at patricia.marcin@rivkin.com or (516) 357-3342.