Foundation Moments: Avoiding Tax Penalties by Making Qualified Charitable Distributions

 |  Foundation Moments  |  Baker Crow

With the fourth quarter of 2022 only days away, those of you age 72 and older must ensure you’ve withdrawn your required minimum distribution (“RMD”) prior to year-end, otherwise there’s a 50% tax penalty on any shortfall. Ensuring you’ve taken your RMD by year-end can be a nuisance, and in fact for some of you being forced to take this required distribution annually results in unwanted additional income taxes.

One of the ways you can reduce your income taxes is to designate charities to receive up to $100,000 of your RMD. That portion of your RMD which is distributed to charity will not be included in your income and thus it will not be taxed. This distribution is called a qualified charitable distribution (“QCD”). For a distribution from your IRA to qualify as a QCD, you must be at least age 70 ½, you can’t benefit from the distribution, and the distribution must be made directly from your IRA to the charity. The charity must also qualify for 501(c)(3) status. Mountain Brook Baptist Church and the Mountain Brook Baptist Church/James D. Moebes Foundation qualify to receive QCD’s.

A personal fund you create in the Mountain Brook Baptist Church/James D. Moebes Foundation is a great vehicle for receiving some or all of your QCD’s. It’s an easy and tax efficient manner for you to leave a lasting legacy. Through annual gifts of your QCD, you can build an impactful fund in our Foundation which will immensely benefit current and future congregations.

I’m happy to discuss this strategy with you and your tax advisor to determine if it makes sense for you.