Giving 101: Benefits of a Qualified Charitable Distribution
WI Green Fire, October 19, 2022
By Bob Gurda, WGF Treasurer
Can both WGF and I benefit if I donate from my IRA?
Yes, yes, yes! And there is an easy method. More and more WGF members are catching on to this opportunity, so consider joining the party!
It’s called a Qualified Charitable Distribution (QCD). It goes directly from your IRA to WGF, and you can use this method every year, up to $100,000 per person. Plus, a QCD can be used to satisfy all or part of your RMD, another one of those acronyms that can be confusing.
For those of us who hold an IRA and are older than 70, early each year we are told how much we need to withdraw as a Required Minimum Distribution (RMD). This number varies from year to year, typically rising but sometimes falling. Some of us don’t pay much attention to the RMD until we get a reminder in the fall that the time to decide is on the horizon.
Usually, a RMD withdrawal means income taxes are due on some or all the amounts. Using the QCD route instead, those taxes can usually be avoided. So, both WGF and the donor benefit.
This year many people have discovered that their RMD is higher than it was in 2021 despite the stock market having taken some large losses recently, resulting in the IRA account losing value. This may be perplexing, but the reason has everything to do with how the RMD number is calculated, and it’s very simple. There are only two factors: your age, and the value of your account on December 31 of the prior year.
The age factor is a percentage, and it creeps up steadily each year. Between age 70 and 80, the factor rises from roughly 3% to 4%. (At age 93 it is still only about 10%).
So, the account value on Dec 31 is usually the dominant factor in making your RMD rise and fall from one year to the next. Looking at my IRA numbers, I see that the account value rose about 30% from 2019 to 2021. That drove my RMD much higher in the last few years. Note that the account value rose substantially even though I was taking out my required distributions!
But so far this year the stock market has declined quite a lot, so it seems out of sync that my RMD would be higher. Remember that it’s the value of the account on December 31 that affects the RMD for the next year. (I am expecting that my RMD for 2023 will be substantially lower than 2022 because it looks very unlikely that the account’s value will recover dramatically by the end of the year).
An increasing number of WGF members have taken advantage of the QCD method to satisfy part or all their RMD, and this has helped WGF do its work. Consult your financial advisor or attorney to consider your options, and if you decide to use the QCD method, set the wheels in motion by early December to make sure there is time for the process to be carried out.
Note also that a QCD can be made for more than the required minimum! Also, a QCD can be made at any time, not just during the last few months of each year.
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