Each year, traditional IRA owners aged 73 and older must take a required minimum distribution (RMD). In nearly all cases, the RMD is calculated using the Uniform Lifetime Table. Under the Uniform Lifetime Table, distributions generally commence at age 73 at approximately 3.8% and increase each year based on the age of the IRA owner. The RMD must be taken by December 31 each year.

Many traditional IRA owners with larger balances take their RMD during the months of October, November and December. Because many individuals with larger IRAs do not need IRA distributions throughout the year to pay for living expenses, they often delay an RMD until the end of the year. This allows the IRA balance to benefit from additional tax-free growth during the year.

Fortunately, the IRA charitable rollover will count towards the donor's RMD. Although RMDs are not required until age 73, the IRA charitable rollover can be used by any donor once they reach age 70½. The IRS term for an IRA charitable rollover is a qualified charitable distribution (QCD) which is also the term commonly used by IRA custodians.

There are five donor profiles for IRA charitable rollover gifts. The first are the convenience donors who find it a simple method for an end of year gift. The second is the generous donor who wants to give more than the 60% of adjusted gross income (AGI) deduction limit for cash gifts. The third is a major donor who may be a generous individual looking for a favorable opportunity to make a major gift. The fourth donor is the Social Security recipient looking to reduce taxes with an IRA charitable rollover gift. Finally, a donor who takes the standard deduction can also benefit from an IRA charitable rollover gift.

Convenience Donor

Many IRA owners wait until the final months of the year to take their IRA withdrawals. As the individual approaches the end of the year, he or she will need to make decisions related to their RMD. If an IRA owner is actively making gifts to charity during the year, then using a QCD is a good opportunity to make a gift.

Convenience donors may contact their IRA custodians to arrange for an IRA charitable rollover. There is no charitable income tax deduction, but also no inclusion in federal taxable income. It is a simple and convenient way to help their favorite charity.

Generous Donor

Some generous individuals already donate up to 60% of their AGI which is the maximum limit allowed by the IRS for deduction of cash gifts each year. Any gifts over this limit may be carried forward and deducted over the following five years. Some generous donors may also have a large IRA and live at a moderate expense level and may not need their entire IRA.

If there is a desire to give more, they can give up to 60% of adjusted gross income from their cash assets and make "over and above" gifts from an IRA. Some generous donors may in effect give nearly 100% of their income per year through this method. Since the IRA charitable rollover is not included in taxable income, it will have no impact on their regular income and other charitable gifts.

Major Donor

As the rules have continually become more favorable for IRAs and required withdrawals have been reduced, IRAs balances are likely to keep growing. There are occasional market dips, but the long-term trend is positive and IRAs will continue to increase in value.

For many professionals and business owners, the IRA may become most of the estate. In these cases, it may be desirable to do "asset balancing" to keep future RMDs at manageable levels. To accomplish this goal, the major donor can give up to the maximum QCD amount in 2025 of $108,000 from his or her IRA. This has the advantage of "balancing" the estate assets.

In addition, there may be income tax benefits. If the donor were to take the IRA distribution into his or her own personal income, there are several types of exemptions that are phased out at higher income levels. Thus, it may be preferable to make the gift directly from an IRA rather than making a charitable gift from regular income.

Social Security Donor

Social Security is subject to two levels of taxation. For donors who have income in excess of the first level, 50% of Social Security is taxed. For donors with income in excess of the second level, up to 85% of Social Security income may be subject to tax.

Withdrawing any amount from an IRA will potentially cause the amount of the donor’s social security benefits that are taxable to increase from 50% to 85%. Even if the withdrawn amount is given to charity and then deducted, there may still be increased tax on the donor’s income. Thus, by making the transfer directly to charity, many Social Security recipients will save income taxes.

Standard Deduction Donor

Many seniors do not have a mortgage and have medical deductions that are less than 7.5% of AGI. Thus, they may not have a sufficient level of deductions to itemize and choose instead to use the standard deduction.

If a donor withdraws $1,000 from his or her IRA and then gives it to charity, there is $1,000 of increased income with no offsetting charitable deduction, since the standard deduction is taken. Therefore, it may be preferable for all donors who take a standard deduction to make IRA charitable rollover gifts directly to charity and avoid the additional income tax on their RMD.