Temporarily waived in 2020 under the CARES Act, these mandatory IRA distributions will once again need to be completed by year’s end. Retirees who did not take their RMD in 2020 may also find they need to take an even larger distribution this year because their account balance has increased.
To alleviate the potential tax burden of these distributions, many advisors are recommending their clients use their RMDs to make qualified charitable distributions (QCDs) to their favorite charities. These tax-free distributions are a financially advantageous way for clients age 72 or older (70½ if they turned 70½ prior to January 1, 2020) to turn their retirement savings into a meaningful gift.
Unfortunately, QCDs often create an administrative headache for advisors, who must process these distributions to charity individually – sometimes issuing hundreds of checks per year. One solution is to use a QCD to establish a charitable fund at the Community Foundation for Brevard.
Although QCDs cannot be made to a donor-advised fund, they CAN be used to establish other types of charitable funds.
Designated funds are a particularly good choice for clients who prefer to support the same charities every year. Your client simply names their fund, chooses the charities they would like to support, and makes a tax-free transfer directly from their IRA to establish the fund. The Community Foundation then handles all future administration and check writing, simplifying the paperwork and automating the distribution process for the advisor.
“In my experience, designated funds are an excellent option for clients who are passionate about specific charities,” said Amanda G. Smith, partner at WhiteBird, PLLC. “Not only do they meet the client’s philanthropic goals, but they also reduce the administrative work for the advisor. It’s a win-win solution.”
In future years, your clients can simply direct their annual RMD to their designated fund, allowing them to support multiple charities with just one QCD. Charitable dollars in the fund are invested and will grow tax-free, increasing your clients’ impact on the causes they care about. Most designated funds are also permanently endowed to ensure your clients’ legacy lives on long after they are gone.
In addition to designated funds, the Community Foundation also offers field-of-interest, scholarship and community funds, all of which can be created with a QCD from your client’s IRA. Funds can be named in honor of your client’s family or business, or can even be named anonymously if they wish to protect their privacy.
For clients who want to support targeted geographic regions or causes, the Community Foundation for Brevard is able to distribute funds nationally or internationally and also has nine specialty funds whose annual grants benefit local programs serving children, veterans, education, arts, equity and inclusion, among other causes. All of these funds can accept gifts of IRA assets, allowing your client to support a wide array of charities with a single transfer.
“Our charitably oriented clients over 72 have found a significant benefit with a direct transfer from their IRA to the charity of their choice of up to $100,000,” said Michael S. Cerow, partner at Carr Riggs & Ingram. LLC. “Distributions to almost all fund types held by the Community Foundation qualify. It’s very easy – one phone call and it’s in motion.”
Inherited IRAs also create taxable income for beneficiaries, meaning you may find it’s more advantageous for your clients to use their retirement assets to grow their fund at the Community Foundation for Brevard tax-free, while leaving more favorable assets like appreciated stock to their heirs. This is especially true in light of the SECURE Act, which eliminated the stretch IRA and requires non-spousal beneficiaries to take the distributions within 10 years.
To learn more about how you can maximize the impact of your clients’ retirement assets, contact Theresa Grimison, president & CEO, at 321-752-5505 or TheresaG@CFBrevard.org. We’re always available to answer your questions about philanthropy or to schedule a personal consultation with you and your clients – all at no cost.