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IRA - RMD Strategies

If you own a traditional, pre-tax IRA and are 70 1/2 or older, you are required to take your RMDs - required minimum distributions each year.  If you want to support a charitable cause and don't need your RMD to live on, consider a QCD - qualified charitable distribution.  This may be the only way you can avoid paying income taxes that you owe on the RMD.  Instruct your IRA account custodian to make the RMD check payable to your charity and mail it directly to them.  The custodian can send the check to the IRA account owner but it must be made payable only to a public charity.  The rules permit you to donate up to $100,000 per year using this strategy.  Many donors will replace this lost inheritance to their children or spouse with life insurance which can often be purchased for pennies on the dollar.  Another option is to allow the charity to use some of the QCD donated funds to purchase a life insurance policy on the life of the donor, thereby potentially increasing the eventual total gift.  Donors often employ this strategy when they wish to earmark the life insurance proceeds to fund a legacy plan in the name of the donor.  

An example might be, a passionate donor to our foundation wants to send us $100,000 in QCD funds for five years, starting in 2018.  The gift plan says that $50,000 of the gift is to be used to fund a $500,000 permanent life insurance policy, naming the donor as the insured and the foundation as the contract owner and irrevocable beneficiary.  Annual QCD payments will be made for five years at which time the policy will have enough cash value to support the policy costs until the death of the donor.  When the donor passes, the foundation is instructed to establish an endowment account that will fund annual scholarships for LUHS students in the donor's family name.  At a 5% fund distribution rate, the endowment fund will produce $25,000 each year for scholarships.  The remaining annual $50,000 QCD is to be used to fund a new annual family scholarship and for the foundation to use to pay for operational expenses.

This same strategy can work with annual QCD donated funds of $5,000.  There are many different strategies that can be employed for varying donated amounts and passions.  

Consult your professional advisors.   We do not provide tax or legal advice.

IRS - IRA Distributions, QCDs

QCD Life Insurance Strategy