Leveraging IRA Distributions And Qualified Charitable Distributions To Maximize Year-End Giving

Created By: Lindsy Hannan
November 7, 2024

Nonprofits have long relied on the generosity of donors to sustain their programs, but there are innovative ways to approach donations that benefit both the donor and the organization. One of the most effective strategies to achieve this win-win outcome is through gifts from Individual Retirement Accounts (IRAs), specifically Qualified Charitable Distributions (QCDs). For donors over 70½ years old, QCDs provide a way to make a substantial philanthropic impact while optimizing tax benefits. This strategy offers immediate support to nonprofits while providing tax savings to donors. Here’s how nonprofits can benefit from approaching their donors about utilizing IRA distributions and QCDs, and why the timing of these gifts is so crucial.

Understanding Qualified Charitable Distributions (QCDs): A Win-Win for Donors and Nonprofits

Qualified Charitable Distributions (QCDs) allow individuals aged 70½ and older to donate directly from their IRAs to qualified charities without incurring taxes on the distribution. The key benefit here is that the donation counts toward the donor’s Required Minimum Distribution (RMD) if they are over 73, reducing their taxable income for the year. Since RMDs are mandatory, utilizing them to benefit nonprofits can be a financially smart choice for donors.

For nonprofits, encouraging donors to use QCDs as part of their giving strategy can lead to substantial gifts that directly support their mission. QCDs can be a powerful tool for boosting end-of-year contributions or for funding specific initiatives or projects that may need a larger financial push. By informing donors of the tax advantages of QCDs, nonprofits can help their supporters make a bigger impact while managing their personal tax liability.

The 2024 annual maximum for QCDs is $105,000. This adjustment, indexed for inflation, allows donors to contribute directly from their IRA to a charity without incurring tax on the distribution.

A relatively new option in IRA charitable giving is the ability to make a QCD to a split-interest gift, such as a Charitable Gift Annuity (CGA) or Charitable Remainder Trust (CRT). The 2024 maximum amount allowed for such gifts is $53,000. Unlike regular QCDs, this is a one-time limit, not an annual allowance. Split-interest gifts enable donors to receive income during their lifetime, with the remainder eventually supporting a charitable organization.

This option can appeal to donors looking to balance their philanthropic goals with income needs. By structuring the gift as an annuity, donors can receive fixed-income payments while benefiting from reduced taxable income at the time of the contribution.

Timing Matters: Why End-of-Year Planning is Critical

For the tax benefits of QCDs to be realized in the current year, it’s essential that the distribution is completed by December 31. Nonprofits should reach out to donors in the fall to ensure they have ample time to consider this giving option, consult with their financial advisors, and complete the necessary paperwork. Waiting until the last minute can create stress and may even result in missed deadlines, meaning the donor loses out on the tax benefit for that year.

Communicating this deadline also emphasizes the importance of planning when making charitable gifts. When communicating to donors, nonprofits should emphasize that a QCD made by December 31 can provide critical mission support while also reducing a donor’s taxable income for the year.

Strategies for Talking to Donors About QCDs and IRA Gifts

When reaching out to donors, consider a personalized approach. Many donors are not fully aware of QCDs or may not realize they’re eligible. Tailored messaging about QCDs is essential, whether in newsletters, direct mail, or one-on-one conversations with major donors. Hosting informational webinars or partnering with financial advisors to educate your donor base on planned giving options can also be highly effective.

Another key strategy is to demonstrate the impact of QCD gifts. Donors are more likely to give when they see how their IRA distribution supports specific programs, funds scholarships, or helps launch new initiatives. Providing examples of past QCD-funded projects or highlighting donor stories can create a meaningful connection.

The Importance of Planned Giving in Long-Term Sustainability

QCDs and other IRA distributions are a cornerstone of planned giving, and nonprofits should make this option part of their larger planned giving program. Unlike one-time donations, planned gifts often reflect a donor’s commitment to a nonprofit’s mission and long-term goals. Educating donors on QCDs helps nonprofits build a more reliable funding base, which is essential for sustainability.

By effectively communicating the benefits and time constraints of QCDs, nonprofits can tap into a generous and impactful source of funding that benefits donors and the communities they serve. As December 31 approaches, nonprofits that reach out proactively can help their donors make the most of this timely, tax-advantaged giving option.

Wherever you are in your planned giving journey, Orr Group has the expertise to support you in planned giving strategy, management, and administration. Get in touch to learn more. 

Lindsy Hannan is a Director at Orr Group. She brings over ten years of fundraising experience with a strong focus on corporate giving, donor relations, pipeline development, event fundraising, and board management.