By Dr. Lizbeth Johnson
Many of us created “savings accounts” through our employers when we began our careers in the working world saving for retirement and in later life. We did not pay income taxes on the money we invested in these qualified retirement accounts, which are often moved into IRA’s (Individual Retirement Accounts). We were not utilizing these accounts while working, therefore paid no income tax on those earned funds. However, as we age, retire, and need them, the accounts are utilized to our benefit but the money withdrawn is registered as “income” and is now subject to income tax. When the owner reaches the age of 72, a percentage of the fund must be withdrawn called the “RMD” or (Required Minimum Distribution). The required distribution is based on the owner’s age and balance of the IRA. If the owner does not take the RMD, he or she will face stiff tax penalties. The amount distributed may push some owners into a higher tax bracket as well.
A great option for individuals over the age of 70.5 years is to utilize the qualified charitable distribution (QCD) to make charitable contributions to their favorite charities. An alternative to taking the RMD is to use part (or all) of the allotment for charitable giving. This option allows funds to be sent directly from your IRA to a non-profit organization. Funds distributed from your IRA using the QCD option are not subject to income taxes. When a senior citizen can lower reported income, they do themselves a favor tax-wise. For senior citizens, income tax, on income and Social Security and Medicare premium costs are all figured on income. Many seniors find advantage in making annual or semi-annual donations to charity. An annual tithe can be made in this way.
In the case of multiple charities, some find it advantageous for the broker/company to send one check to Lutheran Foundation of the Southwest and receive full tax documentation in one document. At no charge, LFSW will send out to the various charities with a letter that indicates the donor’s name and address for an acknowledgement. Sometimes, ownership for the donation does not come through from the broker/company sending the check, so this service is helpful.
Dennis and Maxine McConnell, members of Tree of Life Lutheran Church congregation in Conroe, TX, use the QCD option to make charitable donations each year working with the Lutheran Foundation of the Southwest service. “We appreciate both the convenience of working with the Lutheran Foundation of the Southwest to make QCD contributions to various charities in addition to Tree of Life and the income tax savings the QCD affords us. Working with LFSW provides a very efficient way to handle most of our charitable donations. Because everyone’s situation is different, I suggest discussing possible tax advantages of using the QCD option for your charitable giving with your financial advisor.”
To ensure the gift works to donor advantage, contact your TX-LA Gulf Coast Gift Planner, Dr. Lizbeth Johnson at 713.775.1595 or write [email protected]. She will also provide a brief seminar at your church or by Zoom on how this method of annual campaign contribution can help qualifying donors at your church. Contact her to schedule a workshop with information about using Qualified Charitable Distributions for contributions.