Ask the Expert: Do colleges qualify for IRA's charitable distribution?
You've written about the tax advantages of donating one’s IRA required minimum distribution, or RMD, to a charity. This is called a qualified charitable distribution. Does a college count as an official charity that can receive a QCD?
In many cases, yes.
The only charities that qualify to accept tax-exempt donations are organizations governed by Section 501(c)(3) of the Internal Revenue Code. A 501(c)(3) organization must be "operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition . . . or for the prevention of cruelty to children or animals."
Many colleges are 501(c)(3) organizations. If your alma mater is among them, you can make your donations to the school as QCDs from your individual retirement account. (Of course, these must be bona fide charitable donations. You can't pay your grandchild's tuition with QCDs.)
The advantage of donating this way is that the QCD counts toward your required minimum distribution, but isn't taxable. Let’s say your RMD is $20,000. That $20,000 is taxable income. But if you withdraw $15,000 for yourself and give $5,000 as a QCD, you’re credited with taking a $20,000 RMD and you pay taxes on only $15,000. Another plus: Because the QCD isn't included in your adjusted gross income, it has no impact on your Medicare premium or on the tax treatment of your Social Security benefit.
A QCD donor must be at least 70½ years old at the time of the donation. The QCD must be a check payable directly from your IRA to the charity. (Your IRA custodian can help you meet that requirement.) And your annual QCDs can't exceed $100,000.
THE BOTTOM LINE
Qualified charitable distributions from an IRA can only be made to 501(c)(3) organizations.
