Jackson spoke with his financial advisor Erica regarding his RMD for the year. Jackson mentioned that he usually waits until the end of the year to take his RMD because he does not need it to cover his daily expenses. Erica suggested that he use the RMD to make his charitable gifts this year since she knows that Jackson supports a number of local charities.
Jackson is thrilled with that idea. He was already planning on making additional year-end charitable gifts totaling $50,000. His RMD on his IRA is approximately $40,000. Jackson is able to use the QCD to satisfy his RMD, reduce his taxes and fulfill his charitable goals for the year with the $50,000 tax-free transfer from his IRA.
Georgia is a retired professor. Her 403(b) retirement account has grown substantially over the course of her academic career. She recently turned 71 and vaguely remembers hearing about the possibility of using her retirement accounts to make charitable gifts. She heard this method was better for non-itemizing taxpayers, such as herself. She checked with her financial advisor to see if she could make a tax-free transfer directly from her 403(b) to the university. Georgia learned that she could only make tax-free charitable rollover gifts from an IRA. However, her financial advisor mentioned that her 403(b) account could be converted tax free to an IRA, which would then allow for QCDs. Georgia thought this was a great idea and decided to convert her 403(b) account into an IRA.
Georgia was overjoyed that she could now make QCDs to the university. Georgia receives the benefit of tax-free transfers of her RMD to charity. Her RMD is not included in her income if she makes a QCD and she is able to continue making charitable gifts.
Jackson mentions to his financial advisor Erica that he usually receives tickets to a charity's annual gala for an annual $2,000 donation. Jackson asks Erica whether he can use his QCD to make the $2,000 donation and receive the gala tickets, because he would be donating $1,800 if he excludes the value of the two gala tickets. Erica cautions that if a QCD is used for that donation and he receives the gala tickets, the entire amount of the donation will not qualify for QCD treatment. If Jackson makes this donation, he will be taxed on the full $2,000 distribution from his IRA.
Dominique, age 75, has been making charitable gifts using the current IRA charitable rollover for the past few years to satisfy her RMDs. She enjoys the ease and convenience of using her IRA to make gifts to charity. Dominique likes to make charitable gifts up to her AGI limits each year. Thus, the IRA charitable rollover is a very tax-efficient strategy for her. Ethan, a gift planner at Dominique's favorite charity, has been speaking with her about the potential changes under the Legacy IRA Act. Ethan mentioned that if the Legacy IRA Act becomes law, Dominique would be able to do much more with her IRA. Ethan explains that under the Legacy IRA Act, she would be able to continue making IRA rollovers in the amount of $100,000, and also make an additional gift to a charitable remainder unitrust or charitable gift annuity up to $300,000. Dominique is enthusiastic and supports passage of the Legacy IRA Act. She called her representatives and senators to express her support for the bill.
James has been keeping up with current charitable legislation. He is very hopeful that the Legacy IRA Act will become law. James is 68, so he is not yet eligible to make IRA charitable rollovers. James has asked his gift planner, Tammy, to prepare an illustration for a $400,000 gift annuity. He would like to make the gift from his IRA if the Legacy IRA Act is signed into law. Tammy emphasizes that the Legacy IRA Act is not current law. She prepares an illustration showing what James' gift could look like if the Legacy IRA Act is signed into law. If that were the case, James would not receive a charitable deduction. Instead, he would simply report the amount as non-taxable distributions from his IRA on his tax return. His annuity payments would be taxed as ordinary income. James would receive a 5.3% annuity payment of $21,200 for his life. James continues to support the passage of the Legacy IRA Act and hopes to be able to use his IRA for a tax-free transfer to fund a charitable gift annuity.
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