November 13, 2024

How to make an IRA gift to charity

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How to make an IRA gift to charity

Process must be completed by Dec. 31 to qualify as an RMD for 2024.

LEARN HOW YOUR PLANNED GIFT CAN HELP THE AMERICAN LEGION

Each year, the Internal Revenue Service (IRS) reminds owners of traditional IRAs over 70½ that they may make a charitable gift from a traditional IRA. The agency refers to an IRA charitable rollover gift as a qualified charitable distribution (QCD). An added benefit for those 73 or older is that a QCD may fulfill part or all of your required minimum distribution (RMD) for the year.

It is helpful for owners of traditional IRAs to understand how to do a QCD, what is required to report one on your tax return, and the required information on your acknowledgment from the nonprofit.

How to Set Up a QCD A traditional IRA owner may contact their custodian to start the process for a QCD. While your distributions from a traditional IRA are normally taxable, the QCD payouts will be tax-free as long as they are paid directly to a qualified nonprofit. The QCD is made through a check payable to the nonprofit. An electronic payment or a check made out to the IRA owner does not qualify as a QCD. The owner must be 70½ or over, and the 2024 limit is $105,000. If both spouses are over 70½ and have their own IRA, the $105,000-per-person limit may allow a couple to distribute up to $210,000 per year to the nonprofit. Since QCDs are not taxable, there will be no charitable deduction for making the gift.

How to Report Your QCD Your QCD must be reported on your 2024 federal income tax return. You can expect to receive an IRS Form 1099-R from your IRA custodian. This will show the traditional IRA distribution in Box 1. Generally, you will report the IRA distribution on Line 4 of IRS Form 1040 (the final IRS 2024 tax return may use a different line but is likely to use Line 4). You will enter the total amount of the IRA distribution on Line 4a. If the full amount is a QCD, you then enter zero on line 4b. If part of the distribution is a QCD, the taxable portion is normally entered on Line 4b. You must enter "QCD" next to Line 4. If you have entered zero on Line 4b, the entire QCD will not be taxable.

How To Receive a QCD Acknowledgment Your QCD is not deductible as a charitable contribution. However, you are required to obtain a written QCD acknowledgment from the nonprofit prior to filing your return. This acknowledgment should state the date and amount of the QCD and that the donor has received "no goods or services in exchange for the gift." You should retain the acknowledgment with your other 2024 tax records.

Please note: It is best to start the gift process in November or early December; some IRA custodians may take longer than expected to process the transfer. If a donor has the right to make distributions from their traditional IRA through a checkbook, it will be important to send the check directly to the charity. A donor must allow sufficient time for the charity to deposit the check and for the financial institution to process the check. This process must be completed by Dec. 31, 2024, to qualify as an RMD for 2024.

The American Legion’s Office of Fund Development offers ways to establish your legacy of support for the organization while providing for your current financial needs. Learn more about the process, and the variety of charitable programs you can benefit, at legion.org/plannedgiving. Clicking on “Learn more” will bring up an “E-newsletter” button, where you can sign up for regular information.

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