Unlocking the Power of Your Individual Retirement Account

Qualified Charitable Distributions (QCDs) from Individual Retirement Accounts (IRAs) bring unique advantages to charitable giving. Their tax benefits often surpass those of cash donations, making them a highly efficient way to support the causes that mean the most to you.

A QCD is a direct contribution from your IRA to a qualified charity, like Drexel, that allows you to meet your required minimum distribution (RMD) requirements without adding to your taxable income. This can potentially keep you in a lower tax bracket and help you avoid owing higher taxes on Social Security benefits and paying higher Medicare premiums.

QCDs are more than just a tax-saving strategy — they’re a way to make a meaningful impact while strategically managing your finances.

Here are tips and actionable steps to consider:

A QCD could be right for you — if . . .

• You are required to take RMDs from your IRA, but you don’t need the additional income.
• You DON’T itemize your deductions. Significant increases in the standard deduction amounts in recent years means that many taxpayers no longer itemize their deductions on their tax returns. However, QCDs still offer a valuable tax benefit because the amount you donate as a QCD will not be included in your taxable income for the year even if you do not itemize other deductions.
• You DO itemize your deductions, and you’d like to make an additional charitable gift, but it would not be deductible because you’ve exceeded the current 60% of adjusted gross income limitation on charitable contributions for the year. QCD gifts do not qualify for a charitable deduction, but you’ll still reap tax benefits since the amount won’t be included in your taxable income for the year.

 Understand requirements and restrictions

• While the age for RMDs from IRAs has increased to 73 (and will increase again in 2033 to 75), IRA account holders age 70½ or older are still permitted to make QCDs from their IRAs directly to qualified charities, like Drexel.
• You can make QCDs to more than one charity in a tax year, but the total amount to all charities combined cannot exceed $108,000 per year, per individual.
• Gifts cannot be made to a donor-advised fund, supporting organization or private foundation.
• Gifts can only be made from a traditional IRA. Gifts from a 401(k), 403(b) and 457 plans are not permitted.

Make a tax-smart gift even smarter

The Legacy IRA QCD allows for a tax-free withdrawal from your IRA to establish an immediate payment charitable gift annuity (CGA) and receive guaranteed, lifetime income in return. It is a once-in-a-lifetime election for IRA account holders who are 70 ½ and older, and the total QCD amount is limited to $54,000 per person.

Here are a few other rules for this unique opportunity:

• QCDs may be used to establish CGAs funded only with IRA assets. QCDs may not be combined with other assets.
• If you would like to create more than one CGA (at the same charity or at different charities), you can transfer smaller amounts if the total doesn’t exceed $54,000 and all transfers take place in the same tax year.
• Spouses can each contribute up to $54,000 from their respective IRAs for a two-life CGA.
• Income payments from two-life CGAs are limited to IRA account holders and their spouses.
• Income payments must begin no later than one year from the date of funding and must be at least five percent.
• QCDs used to establish life income gifts do not qualify for charitable deductions. Additionally, all income payments made to recipients from QCD-funded life income gifts will be fully taxable.

Next steps to explore making a QCD gift to Drexel

• Contact your IRA plan administrator with instructions to make a gift from your IRA.
• Contact Drexel to let us know your gift is on the way, and to advise us on how you’d like your gift to be used.
• Your IRA funds will then be directly transferred to Drexel – and we’ll provide you with an acknowledgement letter for your tax records.

Questions about developing a powerful charitable giving strategy? We’re happy to help. Contact David Toll, JD, senior associate vice president, Drexel University Office of Gift Planning, at 215.895.1882 or giftplanning@drexel.edu.