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Other IRA Possibilities Beyond the Charitable Rollover

It is shocking how many forward thinking advisors miss the opportunity to share with their charitably minder investors make gifts using IRA dollars before age 70½. Often this occurs because marketing focuses so much on simply waiting until that age. Qualified Charitable Distributions (QCDs), of course, cannot be taken until age 70½ and come with an inherent deduction, since their otherwise taxable amount is never included in income. But why not effectively donate pre-tax IRA dollars beginning at age 59½ (or at any age for those with inherited IRAs) to manage your deferred tax liability (which grows with your pre-tax IRA balance) and make tax-efficient charitable donations earlier?

First, consider that money taken from an IRA after age 59½ is not subject to early withdrawal penalties. But it is taxable.

QCDs have some limitations other than age threshold. Gifts are limited to $100,000 per taxpayer per year and must be paid directly from the IRA to end charities. This is problematic for wealthy families who want to use IRAs for charitable and legacy planning purposes – such as funding charitable trusts, private foundations, donor advised funds, and supporting organizations – during their lifetimes. QCDs also require coordination with the tax preparer so they are not included as income, because the taxpayer and IRS will receive a 1099 with the amount of the distribution and no indication some or all of it went to charity.

When looking at whether it makes sense to help meet your charitable giving and tax planning goals using IRA dollars, it is best to step back and view your legacy plan broadly over and beyond your lifetime. Start with your end legacy goals in mind. Retirement planning, bequests, charitable giving, preparing heirs, and income and estate tax planning are all interrelated components of an overall financial life plan that supports the goals you're working toward. André and our staff are always happy to explore multiple giving options with you.