Contributed Article by:
Mark Eisinger, Civitan International Executive Vice President
Around this time of year, many Civitans over the age of 70 have questions about Qualified Charitable Distributions (QCDs) and Required Minimum Distributions (RMDs). So our staff went out to collect information and research the facts. It is rather confusing so although this article will share what we discovered, it is always best for you to research your specific situation and consult your tax advisor and/or investment advisor.
What’s the difference?
Required Minimum Distributions (RMDs) refers to the amount that you are required to withdraw/distribute from your tax-deferred retirement accounts, like an Individual Retirement Account (IRA), 401K or similar plans. This ensures that you will finally pay taxes on that money you saved. The required minimum amount is based on your age.
Qualified Charitable Distributions (QCDs) are a way to prevent paying taxes when withdrawing part or all of your RMD. Many make contributions to 501(c)3 organizations like Civitan International. (Thank you!!). So instead of writing a check, one can contact their custodian of their tax-deferred savings and instruct them to directly donate from your savings to the charity.
There are many differences between the two terms RMDs and QCDs:
| Differences | RMD | QCD |
| Purpose | IRS requirement to withdraw tax-deferred savings each year, taxable as ordinary income | Utilize tax-deferred savings to directly benefit a charity and therefore not paying taxes on the amount(s) |
| Age Requirement | 73 or older | 70 ½ or older |
| Impact on Taxable Income | Increases taxable income if distributed to yourself. and may create a higher tax bracket burden | Reduces the amount of taxable income from RMD. Itemization of deductions is not required. (Donations up to $105,000 per IRA Owner can be excluded from Taxable Income. Limit changes yearly based on inflation.) |
| Eligible Accounts | Traditional IRAs, 401(k)s, 403(b)s and other tax-deferred retirement accounts | Traditional IRAs and some other accounts |
| Satisfies RMD? | RMDs must be taken every year when age required | QCDs can satisfy all or part of the RMD requirement. |
| Recipients | To yourself | Only to qualified 501(c)3 charity (like Civitan International!) * |
| Penalty for Non-Compliance | 50% penalty for failure to take RMD | No penalty, but may miss out on tax benefits |
| Deadline | December 31st each year | December 31st each year |
Region 2 Civitan Lori Clapp shared her experience with QCDs. “I use Qualified Charitable Distributions (QCD) from my IRA for donations to some of my chosen non-profit organizations like Civitan International and the Research Center because this is a win-win strategy. Because I must take the Required Minimum Distribution (RMD), QCDs reduce the ordinary income I would otherwise report from my RMD and therefore reduce my tax liability and possible tax bracket. It also provides more money available for donations to Civitan and other charities since I’m using before-tax money. For example, a QCD of $1000 would be reduced to ~$800 after taxes, if first moved to my taxable accounts as part of an RMD. I believe this is a great way to benefit both Civitan International and CIRC and reduce my tax burden at the same time.”
We are passionate about the mission of Civitan International and would be honored to be your qualified charity. You are able to designate the program(s) you would like to donate to and we encourage you to donate to the new Civitan Impact Program this year! www.civitan.org/makeanimpact
* Unfortunately, most clubs don’t qualify for a QCD since they are considered membership clubs so the IRS considers them 501(c)4 organizations.
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