How to Maximize Your Charitable Donations

How to Maximize Your Charitable Donations
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(This article originally appeared in the May 2022 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)


Are you interested in donating to a charitable organization, such as The MOAA Foundation or the MOAA Scholarship Fund, but not sure how to get the maximum impact from your contribution?


[RELATED: Donate to MOAA Charities]

Most people are familiar with making cash donations to their favorite causes, but there are other ways to donate that will not only benefit the charity but may also help donors reduce their tax burden. Here are two options that are popular with donors to MOAA’s charitable organizations.


Qualified Charitable Distribution (QCD)

This is a direct transfer of funds from your IRA custodian, payable to a qualified charity. There are several benefits to this withdrawal strategy: The QCD can count toward satisfying your annual required minimum distribution (RMD), and it is also excluded from taxable income, which can reduce your income tax bill. QCDs don’t require you to itemize deductions when filing your taxes.


[RELATED: MOAA's RMD Calculator]


Some things to keep in mind:

  • You must be at least age 70½ to be eligible to do a QCD. (Note: RMDs don’t kick in until the year you hit age 72.)
  • Each person can donate up to $100,000 annually. If you’re married and each spouse has their own IRA, you can each donate up to $100,000.
  • The funds must be made payable directly from the IRA to the charity, so make sure you work with your IRA custodian to accomplish this correctly.
  • You can donate less than the full RMD to your chosen charity, but be sure you withdraw the remainder by the end of the year to avoid the hefty 50% excise tax the IRS imposes for missing required withdrawals.
  • Make sure to tell your tax preparer that you made a QCD so it can be listed correctly on your tax return.
  • Contributing to an IRA may result in a reduction of the QCD amount you can deduct.
  • The QCD amount is not taxed; you cannot also claim it as a charitable tax deduction.


[RELATED: State Tax Update: Latest on Grassroots Work to Exempt Military Retirement]


Charitable Gift Annuity (CGA)

Many large nonprofit organizations, such as the MOAA Scholarship Fund and The MOAA Foundation, offer charitable gift annuities. The annuity is a contract under which a qualified public charity agrees to pay the donor (called the annuitant) a lifetime income in return for the irrevocable transfer of cash or other property.


The maximum number of annuitants is two, and payments can be made jointly or successively. The charity determines the payment based on actuarial factors. At the end of the annuitant’s life, the charity receives the remainder of the gift.


Annuitants also may be eligible to take a tax deduction at the time of the original gift. If the gift annuity is funded with cash, part of the payments will be taxed as ordinary income and part will be tax free. If the annuity is funded with appreciated securities or real estate owned more than one year, part of the payments will be taxed as ordinary income, part as capital gains, and part may be tax free.


The tax rules are complex, and it’s best to discuss the specifics with your tax adviser.


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About the Author

Lila Quintiliani, ChFC®, AFC®
Lila Quintiliani, ChFC®, AFC®

Quintiliani is MOAA's Program Director, Financial and Benefits Education/Counseling. She is a former Army Military Intelligence Officer as well as the spouse of an active-duty servicemember, and worked for over a decade at military installations as a personal financial counselor.