Philanthropy in Retirement: Using the Qualified Charitable Distribution to manage your tax burden and do good for Faribault.

It seems there’s always something more to learn once you get to a certain age, and managing income and taxes in retirement is no exception. It can come as a shock to learn that the money you’ve accrued in retirement funds isn’t yours to spend until you withdraw it as income. At that point, the IRS will claim a portion, using standard tax tables. The more you withdraw, the higher your tax rate and, potentially, the higher your Medicare fees.

But there is one way to put some of your tax deferred retirement savings to work for a good cause without first withdrawing the money as income– thereby not increasing your tax burden or Medicare premiums. Starting at age 70-½, you are allowed to donate directly from an IRA to a 501(c)3 charity (a charitable organization authorized to accept tax-deductible contributions) with the help of your plan administrator. This is called a Qualified Charitable Distribution (QCD). The beauty of this vehicle is that it allows you to give generously without feeling much sacrifice or additional tax hassles.

Sharing your wealth with your community family can be as fulfilling as gifting to loved ones. The Faribault Foundation offers an array of funds that are eligible for QCD dollars, are reinvested into our community and allow you to brighten the lives of your neighbors, seen and unseen. Here are just a few examples:

● Faribault Beyond the Yellow Ribbon fund aids active and retired military persons in bridging the gap between military and civilian life, helping to cover basic and emergency needs.

● The Faribault Falcon Activities Fund supports activities and athletics of our middle and high schoolers and is a great way to pay tribute to a coach or mentor.

● The CommUnity Opportunity Fund awards dozens of micro-grants to organizations that may not otherwise be on your charitable giving radar.

Qualified Charitable Distributions can be made only from IRA’s. 401k and 403b funds, for example, cannot be used. Your plan administrator can help you roll money over from these funds to a new or existing IRA for this purpose, but it does take some time, so it’s wise to do this early in the tax year. And, as always, consult your tax advisor before taking any action based on these recommendations.

Adjusting your charitable giving strategy to the tax rules of retirement empowers you to make more decisions about your money, rather than having them made for you. And putting some of those tax deferred dollars to work through philanthropy will help promote a sense of purpose and joy. We’d welcome the opportunity to tell you more. Find us at faribaultfoundation.org or by giving us a call at 507-805-8800.

Sarah Beckmann serves on the Board of Directors of the Faribault Foundation.