Not everything I write in this Flash is meant for everyone. For example, last week I wrote about giving and growing for young families, many of whom want to give to the church, but find themselves strapped for cash, what with the ample costs of raising a family. This week I want to write for those a tick or two older than I am, already retired, who face different challenges.
Jesus said, render unto Caesar what is Caesar’s, and unto God what is God’s. I say, follow the law and be loyal Americans, but don’t render under Caesar one farthing more than you need to. Tucker Scott has helped me here in this thinking, and I am grateful for his words and his lessons.
Tax changes in 2017 offer relief to elder church members age 70 ½ whose retirement savings take the form of traditional IRAs. The Internal Revenue Service requires the withdrawal of Required Minimum Distributions (also called RMDs) on an annual basis. This requirement of making annual RMDs can also apply indirectly to 401(k)’s, 403(b)’s or inactive SEP IRA’s. Already you see this gets a bit technical, so check your eligibility with your tax preparer before acting.
Here’s the thing. You may instruct the holder of your IRA (mutual funds, broker accounts, etc.) of your preference that all or part of your RMDs be paid directly from your IRA account to FCC. As you do so, RMDs become QCDs, which are not taxable distributions. So a QCD excludes the amount donated from your taxable income, unlike the regular RMD withdrawals from your IRA.
That benefits you and FCC. All of this matters because, under the new tax law, charitable gifts aren’t what they used to be as tax deductions. With the new tax law, deductions max out at $10,000 for state and local taxes. Combining that with new higher standard deduction limits ($12,500 single, $24,000 couples) your combined tax and charitable deductions may not exceed $24,000. However, the tax savings of using a QCD is like separately deducting the contribution.
Hold on, it gets even more complicated. Important rules dictate that QCD’s are not permitted directly from 403(b)’s and 401(k)’s or active SEP IRA’s. However, if you rollover enough from these qualified retirement plans into a traditional IRA, you can then make the QCD from the IRA. Also, realize that this process takes time so you should take action promptly if you wish to make the contribution this year. If you cannot this year, you can still set things up for your 2019 pledge. Also, because this is somewhat more complicated than just writing a check, you should probably plan on donating your pledge in one or more lump sums, not by weekly contributions.
Still figuring out the vagaries of the changes in law, some IRA custodians may not be equipped to make these QCD’s for you yet, but many can. Check with your IRA custodian to find out their rules. If they can’t help you, you can probably transfer to another custodian who can. Also, note that you should contact your IRA custodian prior to them sending your RMD’s to you for the year. Once the RMD’s are sent to you instead of church, you can’t reverse the process. Nor can you send your personal check to the charity and avoid owing taxes on the RMD distribution.
OK, saying all this exhausts me, maybe you too. But because it’s true, I hope it is helpful to you.
Rev. Dale Rosenberger