Required Minimum Distributions (RMDs) are the minimum amount people of a certain age are required to withdraw from certain retirement accounts. (See the IRS definitions in the FAQ at the end of this article for more details.) For many folks, RMDs are an excellent and convenient way to gain tax benefits from your contributions to North Olympic Land Trust.
Federal tax regulations are changing with the new calendar year. For example, the CARES act temporarily waived Required Minimum Distributions (RMDs) for all types of retirement plans for calendar year 2020, but this is not the case in 2021 because folks will be required to take their distributions.
When you give all or a portion of your RMD to a charitable organization, this is referred to as a “Qualified Charitable Distribution” (QCD). As explained in more detail below, using Qualified Charitable Distributions allows you to:
- give to us right away,
- immediately receive the tax benefits of such giving,
- give more money (because you save on taxes),
- lower your overall taxable income (lower tax bracket),
- avoid complicated Federal tax itemization.
A Qualified Charitable Distribution is excluded from your taxable income (up to $100,000) which is a powerful way to control how much taxable income you report in a given year. For many folks, it’s highly advantageous to do a QCD to the Land Trust, rather than a standard RMD to themselves because they can ultimately lower their total amount of taxable income and stay in a lower tax bracket. On top of all those benefits, people who do this also won’t have to itemize this donation on their taxes.
Another benefit to giving to the Land Trust in this way is that more of the money you earned stays in the community you love. For example, if you take a $10,000 RMD, and you don’t donate it, you will be paying taxes on that money, let’s say at a rate of 15% for a total of $1500 leaving you with $8,500. This distribution would be included in your taxable income. Later, if you give that distribution to the North Olympic Land Trust, the amount you have available to donate ($8,500) is less than the original $10,000 distribution because you’ve paid taxes on it. However, if you chose to immediately give your RMD of $10,000 to the North Olympic Land Trust as a Qualified Charitable Distribution, the Land Trust would receive the total amount ($10,000)—that’s an additional $1,500 to the Land Trust that you didn’t pay in taxes!
Many of our donors report to us that they prefer to give QCD through their retirement accounts because it enables them to give more money during their lifetime. One donor told us that she wanted to write us some “big checks,” but felt she couldn’t because she’s retired and thought it was better to leave us money as a legacy gift. However, after a conversation with her tax advisor, she learned that she can give major gifts now, through Qualified Charitable Distributions, and not only does this mean she can see the benefits of her gifts during her lifetime, but she can also lower her overall taxable income by not “pocketing” her RMD, which she is required to take. This donor still plans to leave us a legacy gift—which we are exceedingly grateful for—but she’s also happy that she can start giving to us now to bear witness of her gifts benefiting the community she loves, and we’re thrilled to support her giving goals now, too.
To ensure the Land Trust receives the full amount and you don’t pay taxes, it is important to work with the company that manages your account to get us the Qualified Charitable Distribution. Preferably, the company who manages your account will send us a check directly, and they will provide you and your tax professional with the appropriate documentation for your Qualified Charitable Distribution. In this scenario, the Land Trust will not provide you with a tax receipt because the company that holds your account will provide you with the necessary tax forms, but we will recognize your gift and send you a confirmation thank you letter.
Here are some common questions related to Required Minimum Distributions & Qualified Charitable Distributions
⇒ What is a Required Minimum Distribution (RMD)?
A required minimum distribution is the minimum amount one must withdraw from certain retirement accounts each year. (IRS)
⇒ What accounts do these apply to?
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k), 403(b) & 457(b) Plans
- Profit Sharing Plans
- Other Defined Contribution Plans
- Note: Roth IRAs do not require withdrawals until the owner passes
⇒ What is a Qualified Charitable Distribution (QCD)?
“Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.” (IRS)
⇒ What ages are impacted by this RMD law?
The general rule is that you must start taking RMDs the date that you turn 70½ (or 72 if you reach the age of 70½ after December 31, 2019). (IRS)
⇒ How do I calculate my RMD?
Everyone’s required minimum distribution amount is different. To understand your personal situation, you can visit the IRS website to download a worksheet, or speak with your financial and/or tax advisor.
⇒ What happens if I don’t take my RMD?
You may be required to pay a 50% excise tax on the amount not distributed. It is important that people speak with a financial advisor or tax professional to ensure they are taking the correct amount of RMD to avoid this excise tax. (IRS)
⇒ How do I give my RMD to North Olympic Land Trust?
- Contact the company or companies that manage your account(s) and request that they send your Qualified Charitable Distribution to the Land Trust.
- Optionally, also contact Alex at the Land Trust at 360.417.1815 x 3 so we know to thank you and look out for your contribution.
⇒ Where can I learn more about Required Minimum Distributions and Qualified Charitable Distributions?
- You should always speak with your financial and tax advisors before making financial decisions. Tax laws are constantly changing, which is why it’s important you talk with someone who knows the most current rules and regulations, and who understands your unique financial situation. The Land Trust cannot help you determine what’s best for you.
- IRS FAQ – Distributions offers many answers to questions about QCDs
- Retirement Topics – Required Minimum Distributions (RMDs) offers many answers to questions about RMDs
⇒ What information should I give to the company that holds my account so I can make sure North Olympic Land Trust gets my Qualified Charitable Distribution?
- Name: North Olympic Land Trust
- Mailing Address: PO Box 2945, Port Angeles, WA 98362
- Tax ID Number: 91-1500378
- Development Contact: Alex Wilson, 360.417.1815 x 3
From the desk of Development Director Alex Wilson. Alex is not licensed to practice law in the state of Washington; thus, nothing stated above should be construed as legal advice. If you have a legal question, you should consult with an attorney licensed to practice in the State of Washington and/or the in state you reside.