Giving with Benefits: QCD Part 2

Personal Money Planning |

Today, like last week, I want to do another reminder—this time about Donor Advised Funds (in case you’ve forgotten the last time we discussed this). Since we are in the season of giving, I thought a reminder was due.

But first, one more point about last week’s topic: Qualified Charitable Distributions (QCD). Last week I reminded you who are 70-1/2 or older about the wonders of the QCD. The QCD is a distribution from an IRA to a charity that allows that distribution to be tax-free. But the distribution is only tax-free if you report it on your taxes.

Now, the fact that your IRA custodian sent a check to your charity may make you think that they will tell the IRS on one of those 1099-something forms. But no. There is no reporting to the IRS about this. However, they WILL tell them that you took a distribution. Left at that, the IRS is going to tax you on that distribution.

To prevent that, when you do a QCD, don’t forget to tell your tax preparer that it happened. And if you happen to be your own tax preparer, don’t forget to annotate it to the IRS properly on your tax forms. That way you’ll get your tax savings.

Now to segue to our topic for this week. The Donor Advised Fund (DAF) is a wonderful way to get a charitable tax deduction and then decide where the money goes.

A Donor Advised Fund is an account that is set up at places like the Wichita Falls Area Community Foundation. As the name implies the account (fund) gets recommended where to send its money (advised) by the Donor to that fund (or their designated representatives). As the Fund itself is part of a charity, putting money into it is a deductible charitable contribution.

Think of it. You might not know exactly where you’d like the money to end up, but you want to get your deduction this year. A DAF allows you to do that. Or maybe you know where you want the money to go but you’d like to make a large donation now and then spread out the giving across multiple years…a DAF is perfect for that.

So, as you are making your charitable plans now and for future years, consider the Donor Advised Fund. For more information about these great giving tools contact the Wichita Falls Area Community Foundation.

Oh, and before you try to combine today’s topics, I’ve got some disappointing news. You cannot make a Qualified Charitable Distribution to a Donor Advised Fund. At least not yet. There’s some talk in Washington about making it possible in the future…but ya know, there’s a lot of talk in Washington that doesn’t go anywhere.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.