Like many of us, the sudden onset of the recent pandemic and resulting stillness of routine gave Mark and Gina* a lot of time for reflection. Along with feeling a profound sense of gratitude for their health and many blessings, they reviewed their overall finances and talked about what life could look like moving forward and how they could make a difference. Thanks to many years of planning, saving, and a great performance in the financial markets, Mark and Gina found that they had accumulated more wealth than they had anticipated, and they wanted to give back.
As they reflected on the things that have brought the deepest level of joy to their lives, their Catholic faith was at the top of the list, and one area that immediately stood out was the foundational Catholic education they both received. The opportunity to help with the affordability of tuition at our Catholic schools, particularly their beloved high school, was a cause they could get behind. Not only were Mark, Gina, and their children all proud graduates of the school, three of their grandchildren are currently enrolled and thriving as students. For the family, the school provides a strong academic experience, is a place to pursue athletics and build relationships, and most importantly, creates the opportunity to cultivate their Catholic faith. They also knew that one of the barriers to accessing a Catholic education is the cost of tuition, so they saw this as the area where they wanted to focus their attention.
When I met with Mark and Gina, they had in mind the “why” and the “what” for supporting their passion, we just needed to discuss the “how”. Because both spouses were over age 70½, they were both able to take advantage of what is known as the IRA Charitable Rollover or Qualified Charitable Distribution (QCD for short).
This type of gift allows an individual to give any amount (up to a maximum of $100,000) per year from their IRA directly to a qualified charity without having to pay income taxes on the money. By giving a gift directly to a charity, the QCD also allows traditional IRA owners to exclude this charitable gift from their adjusted gross income. The transfer generates neither taxable income nor a tax deduction, so the Donor will benefit even if they do not itemize deductions. As an added benefit, because these types of gifts do not count as income, they can reduce a Donor’s annual income level which may help lower Medicare premiums and decrease the amount of Social Security that is subject to tax. All of this, in addition to knowing that they are helping their beloved School – a true win-win!
We talked about how their gift could begin to help students and families now, and we found that there was an opportunity to establish a Tuition Assistance Endowment Fund with The Catholic Foundation in Mark and Gina’s family name. It was very important to them to involve their children in their charitable plans from the very beginning, so Mark and Gina decided to begin adding to this new Endowment Fund immediately with their annual QCDs from their IRA accounts, and their children and grandchildren would be able to add to the Fund over time. This opportunity to make a difference by instilling family philanthropy was strengthened by the family’s commitment to practice generosity together beyond Mark and Gina’s lifetimes.
A few things to keep in mind about Qualified Charitable Distributions:
- All traditional IRA owners or beneficiaries who are at least 70½ years old can make a QCD, and all contributions and earnings that accumulate inside a traditional IRA are eligible for QCDs.
- The QCD is excluded from the Donor’s adjusted gross income.
- The QCD rollover must be completed by December 31 of the year to be excluded from the Donor’s taxable income for that year.
- The amount that can be taken as a QCD is capped at $100,000 per taxpayer per year.
- The gift must be made DIRECTLY to the charity and not to the account holder to be excluded from Donor income.
- Beginning in the year a Donor turns 72, they can use the QCD gift to satisfy all or part of their RMD, exempting the RMDs from income tax.
For Mark and Gina, this was the perfect way to take advantage of an opportunity available to them as part of their overall charitable financial planning. By making Qualified Charitable Distributions from their IRAs, they are now able to begin to see their charitable dollars at work by making an impact for young people in their community today. For this couple, they were thrilled to be able to jump-start their legacy of supporting Catholic education and being able to witness the impact of their gifts was an added joy for the entire family.
* Names have been changed.
If you would like more information or want to discuss Charitable IRA Rollovers, I would welcome a conversation. Please contact me by email at
email@example.com or by phone at 614-443-8893.