Required Minimum Distributions: Charitable Giving, Tax Benefits, and the Land Trust

Photo: Mike Auger

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 people, RMDs are an excellent and convenient way to earn tax benefits by contributing to North Olympic Land Trust.

Be aware that federal tax regulations change every 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 people will be required to take their distributions.

When you give all or a portion of your RMD to a charitable organization, it’s called a “Qualified Charitable Distribution” (QCD). Using QCDs allows you to:

  1. Give to the Land Trust immediately;
  2. Instantly receive the tax benefits of the gift;
  3. Donate more money because you have saved on your taxes;  
  4. Lower your overall taxable income because you will be in a lower tax bracket; and
  5. Avoid complicated federal tax itemization. 

A QCD is excluded from your taxable income (up to $100,000), therefore it is a powerful way to control how much taxable income you report in a given year. For many, it’s highly advantageous to do a QCD to the Land Trust, rather than a standard RMD to themselves because they can ultimately lower the total amount of their taxable income and thus sit in a lower tax bracket. In addition — an importantly — people who take advantage of a QCD don’t have to itemize this donation on their taxes.

Photo: Patrick Downs

Another benefit to giving to the Land Trust using through an RMD or QCD 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, the distribution is included in your taxable income. Let’s say you pay a tax rate of 15% — you’ll pay $1,500 on that $10,000 leaving you with $8,500. If you decide to give the distribution to the North Olympic Land Trust, the amount you have after taxes ($8,500) is less than the pre-tax $10,000 distribution. However, if you chose to immediately give your RMD of $10,000 to the North Olympic Land Trust as a QCD, the Land Trust would receive the total amount  of $10,000 — that’s an additional $1,500 to the Land Trust.

Many of our donors report to us that they prefer to give QCD through their retirement accounts because it allows 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 QCDs. 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 — for which we are exceedingly grateful — but she’s also happy that she can start giving to us now to see her gifts benefiting the community she loves, and we’re thrilled to support her giving goals now, too. 

Photo: Patrick Downs

To ensure the Land Trust receives the full amount of your RMD and you don’t pay taxes on it, it’s important you work with the company that manages your retirement account. It’s the company that customarily sends a check directly to the Land Trust; it should provide you and your tax professional with the appropriate documentation for your QCD. The Land Trust will also provide you with a tax receipt, based on IRA guidelines, noting your donation as a QCD.

Some common questions regarding Required Minimum Distributions and 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
  • 401(k), 403(b) and 457(b) plans
  • Profit-sharing plans
  • Other defined contribution plans
  • Note: Roth IRAs do not require withdrawals until the owner passes away

⇒ 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)

⇒ At what age does the RMD law take effect?

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 that is 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?

  1. Contact the company or companies that manage your account(s) and request that they send your Qualified Charitable Distribution to the Land Trust. 
  2. 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?

  1. 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.
  2. IRS FAQ – Distributions offers many answers to questions about QCDs
  3. 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?

  1. Name: North Olympic Land Trust
  2. Mailing Address: PO Box 2945, Port Angeles, WA 98362
  3. Tax ID Number: 91-1500378
  4. 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.