Do you have an IRA account for your retirement savings? You can use it to give to your favorite charitable institutions, such as The Seattle Public Library Foundation.
An IRA is a tax-deferred investment account for which you only pay income tax upon withdrawal. It’s commonly used for people who don’t have retirement accounts through their employer or who wish to consolidate retirement accounts from previous jobs.
The IRA differs from a Roth IRA because the Roth IRA requires the holder to pay taxes on contributions, and then earnings are tax-free under certain conditions.
The year the IRA holder turns 70 ½ years old, the IRS then requires that person to withdraw a certain percentage each year, known as the required minimum distribution (RMD). That RMD is a percentage of the account that varies year to year based on life expectancy.
Roth IRAs don’t impose required minimum distributions.
GIVING WITH THE IRA
An IRA also allows one to issue what’s known as a qualified charitable distribution (QCD). This, too, can only happen starting the calendar year the IRA holder turns 70 ½ years old.
The QCD can make up a portion or the entirety of one’s required minimum distribution. Just tell your financial institution where to give your money and how much – you never take possession of it or pay taxes on any part of it, and the contribution is 100 percent tax deductible.
An additional bonus: You don’t have to itemize your giving through an IRA because the portion you give to charity is not taxable income to you. And, unlike with a donor-advised fund, no fees are levied.
Just make sure the charities to which you give are 501(c)(3) – The Seattle Public Library Foundation fits that bill! And specify with your financial institution whether you want your name attached to your gift.
‘IT’S REALLY EASY’
Janeine and Bob Green, donors to The Seattle Public Library Foundation, began giving qualified charitable distributions to the Foundation last year and recently made their second contribution through their IRA.
“It’s really easy,” Janeine Green said, adding that she only had to give the charity’s name and address to make her contribution happen. Everything she needed to know she found on Charity Navigator.
Janeine and Bob frequent the Green Lake Branch to find large-print books and regular books alike, and also make heavy use out of ebooks for the book club at their condominium.
“We love our Green Lake Library,” Janeine says.
She also appreciated The Seattle Public Library’s wide array of programs, and librarians’ ability to connect patrons with resources such as housing aid and employment help.
“It just has a lot to offer,” Janeine adds.
She loves the Foundation’s personal touch in corresponding with donors and she finds the IRA contribution especially convenient because she doesn’t have to itemize it or report the withdrawal as income.
“When you do your income tax, there’s no special form you fill out,” she says.
“To me, it’s the most effective use of the money.”
This article is informational only and not intended to provide financial advice. Contact your financial institution for advice and its own requirements on qualified charitable distributions.
This story appeared in our Winter 2019 newsletter, The Next Chapter. Check out the full issue here.