RMDs & QCDs: CARES Act Implications for Your Charitable Giving

Learning more about required minimum distributions (RMDs) and qualified minimum distribution (QMDs) can help you with your charitable giving planning.
Learning more about required minimum distributions (RMDs) and qualified minimum distribution (QMDs) can help you with your charitable giving planning.

In most years, many of our donors who are over age 72 ½ must take an annual required minimum distribution (RMD) from their tax-advantaged retirement plans before year-end.

The government established this rule to ensure income taxes get paid from tax-deferred retirement plan contributions, such as IRAs, 401(k)s and 403(b)s. To calculate the RMD, a formula based on life expectancy is applied to your retirement plan balance.

However this year, due to COVID-19, the Coronavirus Aid, Relief, and Economic Security (CARES) Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs in 2020. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020. This waiver does not apply to defined-benefit plans.

Qualified Charitable Distributions

Although the CARES Act waived RMDs in 2020, qualified charitable distributions (QCDs) remain.

QCDs were first introduced in 2006 to help offset the RMD income tax burden from taxpayers and to encourage charitable giving. The law allows a taxpayer over age 70 ½ to donate up to $100,000 directly to charity and bypass his or her taxable income.

In all preceding years, QCDs counted toward your RMD.

The CARES Act effectively affords those over age 59 ½ benefits similar to a QCD if they take a cash contribution from their retirement account and give it to charity, because this year individuals can deduct 100% of their AGI for cash charitable contributions, among three other key provisions.

Contributing QCDs in 2020

Although federal law does not permit donor-advised funds to accept a QCD, a gift of this type does represent an opportunity for donors to support scholarship, field-of-interest or designated funds, including programs and funds at The San Diego Foundation, such as:

San Diego COVID-19 Community Response Fund
Our COVID-19 Community Response Fund is rapidly deploying resources on a rolling basis to nonprofit organizations that are supporting low-income workers, families and vulnerable communities most affected by the coronavirus crisis.

To date, we have raised $56 million to support San Diegans in need and granted $53 million to local nonprofits. Your donation will help the people and organizations in our community most affected by coronavirus.

Black Community Investment Fund
The Black Community Investment Fund prioritizes and invests in community-led, innovative efforts that increase racial equity and generational wealth for Black San Diegans. Co-founded by the Central San Diego Black Chamber of Commerce and The San Diego Foundation, and led by an advisory council of San Diego leaders, the fund will focus grantmaking on four key pillars impacting economic prosperity among Black San Diegans: Education, Employment, Entrepreneurship and Housing.

This fund provides a new opportunity for philanthropists to help make San Diego County a better, stronger and more equitable region so every San Diegan can thrive, prosper and feel like they belong.

Community Scholars Initiative
The Community Scholars Initiative helps hundreds of young San Diegans prepare for, pay for, and persist through college. Despite their talent and aspirations, first-generation, low-income, and underrepresented students face unique and considerable barriers to achieving their academic dreams.

The Community Scholars Initiative works to provide financial support and critical wraparound services that bolster academic achievement through need-based scholarships for students, and grants to nonprofit organizations preparing students for success in the college environment. The initiative targets students from underrepresented groups, with a special focus on Latinx youth.

Click here to see a list of The San Diego Foundation programs and funds that can accept QCDs.

Please also consider contacting our Donor Services Team at (619) 814-1332 or donorservices@sdfoundation.org to review your charitable and income tax planning.

As part of your team of advisors, we can help you determine the best way to take your QCD and meet your charitable goals in these uncertain times.