Why charities - and wealth donors - love the IRA charitable rollover

On Dec. 18, 2015, President Barack Obama signed a law making the qualified charitable distribution (QCD) permanent. And in case your CPA hasn't told you, that's great news for charities and the wealthy individuals who support them, who may have IRA accounts that they don't plan to use. A QCD is a special provision that allows donors over age 70½ to transfer up to $100,000 out of their IRA each year directly to charity and not have it be taxable to them as ordinary income.

As I noted in my article last year, if you are 70½ or older and have a traditional IRA account, IRS rules require you to start taking distributions from this account whether you want to or not. Known as "Required Minimum Distributions"(RMDs), these distributions are generally subject to income taxes at ordinary income tax rates. For wealthy individuals in the 39.6 percent tax bracket who don't need the IRA income, that has been a tax-painful distribution every year.

But for those who are charitably-minded, the QCD allows them to benefit their favorite charity(ies) directly and avoid those potentially high income taxes. Of course, because they don't have to report the income using this strategy, they don't get the charitable deduction either.

In order to qualify, contributions must go directly to a public charity and be made from traditional IRAs or Roth IRAs. Contributions may not go to donor-advised funds at lo

cal community foundations, but can go to a fund at that same community foundation that is designated for a specific charity. Donors may receive no goods or services in return for their contributions, and they must obtain written documentation of their contribution from each recipient charity.

For those individuals trying to decide between donating highly-appreciated stock and using the QCD strategy, most CPAs would advise the taxpayer to look at their estimated tax bracket (To determine your tax bracket, go to: taxfoundation.org/article/2016-tax-brackets). Donating appreciated stock (held longer than 12 months) will help a taxpayer potentially avoid up to 20 percent in capital gains taxes and they get a tax deduction for the full market value of the stock. If they are in a tax bracket higher than 20 percent, it may make more sense to use the QCD as their preferred charitable giving strategy. However, it will depend on how much the stock to be donated has appreciated as well. As with all tax-saving strategies, it is best to consult with your tax adviser before making this decision for yourself.

Why do charities love the QCD? Because donors tend to give more (since up to $100,000 may be given each year) and most of those donations come as cash (versus securities, which likely must be sold). And because QCDs may not go into a donor-advised fund (where donations can be housed for the lifetime of the donor and beyond), charities may get to directly benefit much sooner.

The non-profit leadership network Independent Sector estimates that more than $140 million was donated from IRAs to U.S. public charities in just the first two years this provision was made available. The median gift was slightly under $4,500. Beneficiaries of this provision include social service providers, religious organizations, cultural institutions and schools: organizations that benefit communities and help to improve lives of those in need every day. It has been a win-win for donors and charities for many years, and now thanks to the law becoming permanent, it will continue to do so for many years to come.

Karin Grablin, of SRQ Wealth Management, can be reached at 941-556-9004 or karin@srqwealth.com. She is a registered representative & investment advisory representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC. This is intended for educational purposes only. You should discuss your personal situation with a qualified tax advisor prior to making any decision.

This story was originally published February 15, 2016 at 10:02 PM with the headline "Why charities - and wealth donors - love the IRA charitable rollover ."