Be cautious on how Charitable IRA Rollover contributions are handled.
For your donors over age 70 ½, the Charitable IRA Rollover has become an increasingly popular method to distribute their Required Minimum Distributions (RMD) each year by giving from their IRA to charity and circumventing their tax return. Many IRA custodians are now offering IRA checkbooks for donors to use in making their Qualified Charitable Distributions (QCD) to their favorite charities. But there is a danger to the donor in using their IRA checkbook to make their charitable contributions late in the year.
Unlike a normal personal check for a charitable contribution, which can be mailed to a nonprofit on the last day of the year and have it count as a tax deductible contribution based on the postmark on the envelope, the QCDs are handled differently. If a donor sends you a QCD check from their IRA checkbook prior to December 31st and you don’t receive it or bank it until January 2nd, the donor now has a problem. If the amount of that check was part of the donor’s Required Minimum Distribution for the year, it will NOT be deemed to be distributed out of their IRA account to charity until it is actually deposited in the nonprofit’s bank account and cleared by the donor’s IRA. So if a donor sent you an IRA check for $500 as part of their RMD and you did not bank it until after the 1st of the year, your donor will be assessed a 50% tax penalty ($250) for not meeting their Required Minimum Distribution from their IRA because the money was still sitting in their IRA account on January 1st.
If your donors have IRA checkbooks, they should have the QCD check in your hands well before 12/31 (we recommend by 12/20) so that you can bank it be sure it clears their IRA account by year-end.
In addition, it may be a good practice to alert your donors who are over age 70 ½ who do not have an IRA checkbook but who desire to make a QCD to your organization that they should get their RMD requests into their IRA custodian early because many custodians have a cutoff date in mid-December for making QCDs to charity.
Please feel free to call us with your questions and comments at (515) 277-4050 or you can email Johnne Syverson at firstname.lastname@example.org