Why Have Charitable Gifts From IRAs Increased Dramatically?

Qualified Charitable Distributions (QCDs) from IRAs, also known as IRA charitable rollover gifts, increased by 73.8% from 2017 to 2018, and 92% of nonprofit organizations surveyed by FreeWill reported increases in QCD giving.

ThinkAdvisor’s recent article, “Charitable Gifts From IRAs Shot Up by 74% in 2018,” says the 7% of nonprofits that reported a decrease were primarily small charities that received few QCD donations in both years.

FreeWill noted that QCDs are open to anyone 70½ and older with a traditional IRA. However, 401(k)s aren’t eligible for QCDs. Distributions from IRAs can satisfy the IRS’s minimum distribution requirement (RMD). These gifts can be made annually, up to a maximum of $100,000 per year. There is also no minimum.

FreeWill’s research looked at about 120 nonprofits with total revenue ranging from $1 million to $1 billion. The research showed that QCD gifts are getting larger: 52% of charities that responded said the average gift had increased since 2017. Only 12% said the average had decreased, and 30% reported no change.

About 50% of respondents said demographics were responsible for the sharp growth in giving via QCDs, while 27% said it was changes in the tax law. The tax law changes mean that for many donors older than 70, QCDs may be their only way to get a meaningful tax benefit from charitable contributions, since they can no longer itemize deductions and don’t have the charitable deduction.

In addition to the tax incentives, demographic shifts are dramatically altering charitable giving in our country. Americans between 70 and 80 are the fastest growing age bracket. Their numbers will continue to grow over the next 10 years.

The nonprofits in the study said there were several obstacles that keep donors from making QCD contributions. About 80% of respondents said their biggest challenge when processing these gifts, was a lack of information shared by IRA custodians.

The survey’s respondents reported a second challenge to QCDs reaching them: many donors are not aware that the option exists or are confused by the process of making contributions. Planned giving officers reported that up to 75% of all questions in estate planning sessions with donors were about QCDs. The third big challenge comes from confusion within nonprofits, about which department is responsible for QCDs from IRA rollovers. Nearly a quarter of respondents said the responsibility devolved on a combination of departments.

Reference: ThinkAdvisor (May 6, 2019) “Charitable Gifts From IRAs Shot Up by 74% in 2018”

Suggested Key Terms: Tax Planning, Financial Planning, Required Minimum Distribution (RMD), IRA Charitable Rollover Gift, Qualified Charitable Donation (QCD)

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