How to Donate Directly From an IRA

Editor’s note: The Wheel of Dharma is reprinting this article, which appeared in the Buddhist Church of San Francisco newsletter in November 2024. Required Minimum Distributions (RMDs) can be used for charitable contributions to qualified nonprofits like the BCA. For more information, contact Michiko Inanaga at minanaga@bcahq.org

---

I was born in the middle of the Baby Boom, the period after World War II between 1946 and 1964. 

Boomers of my age must comply with a federal law that requires a certain level of mandatory withdrawals from tax-deferred retirement accounts like IRAs, starting at age 73. These withdrawals are called Required Minimum Distributions (RMDs) and are counted as taxable income.

If you plan to make charitable contributions, you can reduce your tax bill by donating a portion of your RMD directly to nonprofits as Qualified Charitable Distributions (QCDs). One Buddhist Church of San Francisco (BCSF) donor recently made a significant gift by directing his brokerage firm to donate directly to BCSF from his IRA. BCSF donors also used QCDs for annual BCSF membership and Oseibo donations.

The downside to using QCDs for charitable gifts is that you cannot claim the donations as charitable deductions. However, this may not be a concern if you take the standard deduction like the vast majority of taxpayers, instead of claiming itemized deductions.

The current deadline for making your first RMD is April 1 of the year following your 73rd birthday. This is the legal deadline, but for most people, it is best to take your first RMD in the calendar year of your 73rd birthday rather than waiting until the allowable April 1 deadline of the next calendar year. 

Delaying your first RMD to the calendar year after your 73rd birthday may put you in the position of having to take two RMDs in the same tax year, given that Dec. 31 is the deadline for your second and all subsequent RMDs.

Keeping track of RMD payment deadlines is important because failure to withdraw the required RMD by the due date means the amount not withdrawn is subject to a 25% excise tax (can be lowered to a 10% excise tax if RMD is withdrawn correctly within two years).

It is important to consult with your accountant or financial adviser about making charitable gifts from IRAs because tax rules change constantly and can be difficult to understand. 

Rules differ for account holders and their beneficiaries regarding withdrawals from traditional IRAs, SIMPLE, SEP, Roth, 401(k) and 403(b) accounts, For example, RMDs from 401(k) or 403(b) accounts can be Qualified Charitable Distributions only if the funds are rolled over from these accounts to an IRA.

Gary Kitahata is a BCSF member and a BCA Endowment Foundation (BCAEF) board member who enjoys managing his retirement portfolio. He has no formal training in personal finance and firmly cautions readers to check with their own professional advisers to determine the best course of action for their situation.