Do Good with Your IRA and Pay Zero Tax on Your Required Minimum Distributions

November 23, 2020

Mat Sorensen

Required Minimum Distributions (RMD) from IRAs can be a burden for taxpayers as they raise your annual income levels and can boost you into a higher tax bracket. By using the Qualified Charitable Distribution (QCD) Rule, there is a way for IRA’s to do good and for the owner to avoid tax on their RMD. This rule allows IRA owners to exclude up to $100,000 of their RMDs from their income when the distribution is given to a qualified charitable organization. That’s right, it’s a tax-free distribution to a charity. You win, the charity wins, and the IRS loses.

Some of the rules and regulations are as follows:

  • You MUST be age 70½ or older on the date of the distribution.
  • The maximum annual exclusion per individual is $100,000.
  • The charity must qualify as a 501(c)(3) organization and be eligible to receive tax-deductible contributions.
  • Each check will be made payable to the qualified charity and list your name as a donor. Note: You should follow up with the charity directly for a receipt of your donation.

To break it down further, the charitable organization must qualify as a 501(c)(3) organization, which means it is federally tax-exempt as a non-profit organization. Of course, the owner of the IRA can give a larger sum than $100,00 to the charity of their choosing, though any excess distributions will not be excluded from their Adjusted Gross Income (AGI). It is also very important to obtain a receipt from the selected charity for tax purposes.

Mat Sorensen

Mat Sorensen

Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed retirement accounts, which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers. He is published regularly on retirement, tax, and business topics, and is a VIP Contributor at Mat is the best-selling author of The Self-Directed IRA Handbook, the most widely used book in the self-directed IRA industry.