Year-End Giving:

Using a Charitable IRA Transfer

This time of year, many people consider making year-end gifts to nonprofits, not only to support their favorite causes but also to gain tax benefits. You have many vehicles for making donations, but for those who are 70 1/2 years or older, you might consider tapping your individual retirement account (IRA).

The qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate up to $100,000 per year to qualified charities. A QCD can be made tax-free, help minimize your taxable estate and help fulfill your philanthropic aspirations—all while satisfying your annual required minimum distribution (RMD).

Benefits of a QCD

If you don’t use a QCD, withdrawals from traditional IRAs and certain Roth IRAs are taxed as income, even if they are directed immediately to a charity. You would receive a tax deduction for your donation, but various federal and state tax rules could prevent the deduction from fully offsetting the income amount.

A QCD can be a good alternative for distributing the required amount from your IRA. While there is no tax deduction allowed for the donated assets, they don't count as income, so you avoid paying tax on the distribution. You may benefit most from implementing the QCD strategy if you:

+ Do not need all the income from your RMD.

+ Do not want to be taxed on your RMDs.

+ Have significant assets in your IRA.

+ Make charitable gifts but don't itemize deductions. Generally, only taxpayers who itemize get federal income-tax-saving benefits from charitable donations.

+ Make a gift that is large, relative to your income. A QCD is not included in taxable income; therefore, it does not count against the usual percentage limitations on using charitable deductions. In addition, by lowering your income, a QCD may potentially help you to lower your tax bracket and avoid higher taxes on Social Security benefits or tax surcharges such as the 3.8% net investment income tax.

Limitations of a QCD

There are limitations to making a QCD from your IRA, including:

+ Total gifts cannot exceed $100,000 per year, per IRA owner or beneficiary. Married taxpayers with separate IRAs can give up to $200,000 total but no more than $100,000 from each spouse's IRA.

+ Gifts must be made directly from your IRA to a public charity—supporting organizations, donor-advised funds and most private foundations are not eligible. You also cannot use the distribution to establish a charitable gift annuity or fund a charitable remainder trust.

+ You can make a donation only from your traditional or Roth IRA. Donations cannot come from other employer-sponsored accounts, such as 401(k)s, 403(b)s or active SEP-IRAs and SIMPLE IRAs, to which employer contributions are made. You can, however, rollover funds from your 401(k) or 403(b) to an IRA to contribute to a charity.

If you think a QCD may be a good year-end giving option for you or a family member, talk to a financial advisor and tax professional to discuss your situation. There are many giving strategies, and you’ll want to find the ones that are the right fit for you.

Disclosures: This communication is not intended to be tax advice and should not be treated as such. Each individual's tax situation is different. You should contact your tax professional to discuss your personal situation. Securities are offered through LPL Financial, member FINRA/SIPC.

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