Gifts to Charity From IRA Are Tax-Advantaged

Ed and Carol Cowell enjoyed life together on the Outer Banks for many years, and were motivated to show their abiding affection by making gifts to benefit local current and future generations here. Like many others, they appreciated that the Community Foundation supports local needs and holds a variety of endowed funds created by donors to help the community in perpetuity. With some planning, the Cowells established funds here, took advantage of tax laws, and contributed to their funds in ways that maximized their giving. Even though Ed passed away in 2021, the funds established during his lifetime will continue to perpetuate his and Carol's legacies of caring for our community, for generations into the future.

The Cowells created two endowments at the Community Foundation. The Cowell Donor-Advised Fund now affords Carol the opportunity to make grant recommendations in support of the causes she and Ed have been most passionate about. Dozens of grants to organizations are made through the fund each year, which simplifies their annual giving by leaving the check-writing to us. The Cowell Donor-Advised Fund is where Carol donates gifts of appreciated stock, avoiding the capital gains tax she would pay if she simply sold the stock. In addition, Carol has left specific instructions at the Community Foundation that lists the charities to receive annual grants from their fund when she is gone.

A second fund, the Cowell Gratitude Grant-Making Fund, is a field-of-interest fund, from which the Community Foundation board of directors awards grants each year in the Cowell's expressed interest areas of education, health, and human services.

The field of interest fund was established to receive direct distributions from the Cowell's Individual Retirement Accounts (IRAs). Donor-advised funds don't qualify for tax savings from IRAs, but other types of funds do, including field-of-interest funds, designated funds, and scholarship funds.

"The IRS allows you to make a contribution directly to a nonprofit from a retirement plan," Carol said. This strategy is often recommended by the Community Foundation and by tax experts, because donating directly from a qualified Individual Retirement Account avoids taxes on transfers of up to $105,000 to charity, may reduce taxable income, and can help satisfy annual required minimum distribution requirements.

The Cowells also have pledged additional gifts to the Community Foundation—bequests that one day will increase their two endowment funds and perpetuate their legacy of giving.

Is an IRA rollover right for you?

Individuals age 70½ and older must take "required minimum distributions" from their IRA each year. With the IRA charitable rollover, these individuals can transfer up to $105,000 per year directly to charity and it satisfies the required minimum distribution.

Have you calculated what your IRA required minimum distribution will be this year and how it will affect your taxes?

Learn more about gifts from Individual Retirement Accounts here. Please contact us if you have questions about gifts from Individual Retirement Accounts.

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