Washington News

October is a great month to consider an IRA charitable gift in 2025. A charitable gift from an IRA could reduce or eliminate income tax on your 2025 tax return.

1. IRA Required Minimum Distribution – If you are 73 or older and have a traditional IRA, you must take a required minimum distribution (RMD) and pay income tax on the distribution. As you grow older, your RMD amount and your taxes usually increase. Once traditional IRA owners reach their mid to late 80’s, they sometimes find themselves taking large distributions which then requires them to pay significant income taxes. With larger IRAs, many owners maximize tax-free growth by waiting until the end of the year to take their RMD.
    
2. IRA Charitable Rollover – A good way to avoid paying income tax on distributions from traditional IRAs is to make a gift to charity directly from your IRA. The Internal Revenue Service (IRS) refers to the IRA charitable rollover as a qualified charitable distribution (QCD). An individual over 70½ is permitted to make a QCD from his or her IRA to a qualified charity. The QCD is not included in taxable income. If the IRA owner is over 73, the distribution may also fulfill part or all of their RMD.
    
3. How to Make a QCD Gift – Many custodians require a QCD to be paid from a money market account or similar fund. Because many individuals have invested their IRAs in stocks, bonds or other securities, it may be necessary to exchange the IRA stock or bond accounts for a money market fund prior to the distribution. Because the equity markets are at high levels, some individuals may choose to transfer funds from equities to a money market fund now to prepare for their IRA charitable rollover.
    
4. Rules on the IRA Charitable Rollover – There are some limits to using the IRA rollover as a charitable gift. The IRA owner must be at least 70½ and the maximum transfer amount in 2025 is $108,000. The transfer must be to a qualified exempt charity and may be designated for a specific purpose or field of interest fund. However, QCDs may not be to a donor advised fund or a supporting organization. In addition, QCDs may not be used for a ticket to a charity dinner or other event that involves a partial benefit to the donor because it is required that the entire QCD be for a qualified charitable purpose.