One Thing You Might be able to Teach Your Grandparents

Do you ever feel like you are working so hard for a paycheck only to realize that it is missing a large chunk of payment that you were expecting to receive? Instead, that missing sum goes towards “Wages Withheld for Taxes.” While these funds do go towards products and services that all Americans benefit from every day such as our military and roads, it can still hurt to see a large portion of what we thought we would receive disappear. And this doesn’t change when receiving funds from your retirement account later in life. Many individuals who are retired prefer to give their income (from their retirement account) to their churches. But what if I told you, there is a way, in some cases, for them to give it to their church before that chunk goes missing?

It may seem too good to be true; however, in 2015 the IRS made permanent an existing tax break for charitable contributions with this situation specifically in mind. This break allows retirees who have large amounts saved to donate up to $100,000 a year without it being considered a taxable distribution, and the deduction also lowers the donor’s recorded taxable income for the year. These are called charitable IRA rollovers.

Instead of withdrawing the money from their retirement account, getting taxed on it, and then donating it to charity, the individual can choose to direct the account manager to send the funds straight to the charitable organization without taxes being withdrawn. The IRS calls this a qualified charitable distribution or (QCD) for short. Essentially, by following these rules, the taxpayer is able to give more to charity with the same amount as they were putting in prior to this adjustment.

There are some stipulations that must be followed in order for this to be done correctly.

  1.  You must be at least 70 1/2 years old.

  2. The funds must be transferred directly from your IRA custodian to the qualified charity.

  3. The maximum yearly donation that can qualify for this tax break is $100,000 (as of 2019).

  4. It can only be done from these specific types of retirement accounts:

    1. Traditional IRA

    2. Inherited IRA

    3. SEP IRA

    4. SIMPLE IRA, and a

    5. ROTH IRA (under certain circumstances).

  5. The contribution does not qualify if you receive a benefit from the donation.

Fun Activity: Start a discussion with your grandparents, and see how fast the topic of taxes, which is not often a favorite subject, becomes interesting.

This is an amazing and completely legal technique to minimize taxes for the donor, which in turn provides a larger gift for the gift recipient. If there is a chance your grandparents don’t know about this advantage for their donations to their church, you could save them money on a yearly basis allowing your grandparents’ savings to stretch even further in God’s kingdom.