Uncle Sam may forgive the tax that you owe on an IRA withdrawal and give it to ForestWatch! If you are 70½ years old and have a traditional, tax-deferred IRA, the government requires that you take “Required Minimum Distributions” (RMDs) every year. The RMDs are payouts from your IRA that increase each year beyond your 70½ th birthday.
The amount you originally invested in your IRA is normally before-tax money. In other words, you didn’t pay any tax on that part of your income you invested in your IRA each year. Depending on how you invested your IRA funds (for example in mutual funds) you may also have considerable gains on the original investment.
If you take the IRA distribution yourself, i.e., have it deposited in your checking account or get a check for it, you will have to pay considerable tax on it. The IRA distribution that you must take each year after age 70½ is taxable as ordinary income. That is, both part of the distribution that represents your original investment (the principal) and the gain are taxable.
But there is a provision that now allows you to avoid the tax on your RMD (payout) if you donate it entirely and directly to a non-profit organization like Georgia ForestWatch. That provision is called the Qualified Charitable Distribution (QCD). The QCD has been authorized by Congress in past years on an on-again, off-again basis. It was operative in 2013 but not in 2014. It was authorized again very late in 2015, so most people missed taking advantage of it. Finally, it was made permanent in the omnibus budget bill passed in the fall of 2015.
Here’s how it works. If you have a moderate size IRA, your RMD the first year when you reach 70½ might be, say $5,000. Suppose that your marginal tax rate (percentage of your income you pay in federal income tax after all deductions and credits) is, say 15%. If you take the RMD yourself, you would have to pay 15% of the $5,000 RMD, or $750, in federal income tax in addition to the tax you pay on your other regular income. But if you donate the RMD entirely and directly to Georgia ForestWatch under the QCD provision, Uncle Sam completely forgives the tax on the RMD. So ForestWatch gets the whole $5,000. If, on the other hand, you had the RMD deposited to your checking account, you’d have to pay $750 tax on it, and have just $5,000 – $750 = $4,250 remaining to donate to ForestWatch. Said another way, the QCD provision allows you to amplify what you give to ForestWatch, thanks to the generosity of Uncle Sam.
More information on QCDs can be found at Wealth Management.com (http://wealthmanagement.com/retirement-planning/ira-qualified-charitable-contributions-reinstated-made-permanent), and at the IRS website (https://www.irs.gov/publications/p590b/ch01.html#en_US_2015_publink100041439). Of course, you should consult your tax attorney or knowledgeable CPA for guidance on how to do a QCD and claim it on your federal income tax.
Thanks for your support in protecting the National Forests!