The library receives contributions in many forms from its dedicated supporters.  While cash and stock are the majority of the contributions, increasingly the library is receiving contributions from members of the community who are older than age 70 and who have learned about the meaningful tax advantages of making charitable donations in the form of Qualified Charitable Distributions (QCD) from retirement accounts.

The IRS requires that older individuals (originally when reaching age 70 1/2 and now starting at age 73) who have retirement accounts other than Social Security (such as an IRA) have to withdraw a certain amount of money out of their traditional retirement account each year — that amount of funds the retiree must withdraw is called a Required Minimum Distribution (RMD). The money that is withdrawn as an annual RMD is taxable income.

However, any portion of RMD funds donated directly to a qualified charity can be treated as free from federal taxes.  The donated funds still satisfy the amount of money required to be withdrawn in that year as part of the RMD.  But the charitable contribution funds are not subject to federal income tax in that year. This type of contribution is called a Qualified Charitable Distribution (QCD).

For example, if a retiree is required to take a $25,000 RMD, and donates $5,000 as a QCD to a charity, the retiree receives $20,000 and the charity receives $5,000. The retiree pays taxes only on $20,000 of the RMD.  The $5,000 donation is not treated as taxable income. Accordingly, the retiree has a lower taxable income, and may receive further benefits in terms of Medicare premiums or taxes on Social Security due to the lower taxable income.  The funds must go directly to the charity, the charity must be a 501(c)(3) organization, and there is an annual cap on QCD’s of $100,000.  Not all retirement accounts qualify for QCD charitable contributions.

A retiree can make arrangements for these tax advantaged contributions by contacting the bank or investment company that handles the retirement account (e.g., Vanguard, Bank of America, Fidelity),  giving them the name of the charity and the specific amount of the QCD donation from the annual RMD. It is important to keep the paperwork about the QCD the for calculating taxes that year.