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Endowment Giving

The tax man giveth, and the tax man taketh away. The tax man, the IRS, gives by allowing contributions to certain types of retirement plans to be excluded from income and to grow on a tax-deferred basis. The tax man, the IRS, takes by requiring withdrawals that are taxable, starting in the calendar year after which a person turns 70.5. These are known as Required Minimum Distributions or RMDs. The amount is included in gross income and taxed according to an individual’s tax rate.

These include Traditional IRAs, 401(k) plans, Roth 401(k) plans, 403(b) plans, 457(b) plans, SEPs, SARSEPs, SIMPLE IRAs and most profit-sharing plans. They do not apply to Roth IRAs while the owner is living.

The formula for determining the amount that has to be withdrawn each year changes annually and is based on a person’s age and life expectancy. If a person fails to withdraw an RMD, fails to withdraw the full amount of the RMD, or fails to do so by the applicable deadline, the amount not withdrawn is taxed at 50%.

However, there is a way to avoid having an RMD included in taxable income. If an RMD is given to a qualified charity or a church, the amount is excluded from taxable income. It does not count as a contribution, but its value is much greater to an individual since it reduces taxable income dollar for dollar.
The money must be given directly to the charity or church via a wire transfer, an ACH transfer, or a check made out to the charity or church, even though it can be sent to the individual.

Example: Person A has to take $2,000 as an RMD for the past year to be reported on his current tax return. He requests the financial institution holding his account, e.g., Fidelity, T. Rowe Price, et al to issue a check payable to St. Matthew UMC. The $2,000 reduces his taxable income by $2,000. The individual can either reduce his regular giving to the church by that amount or give it in addition to his regular giving. The tax savings can be significant, depending on a person’s tax bracket.

This information is being provided by Ken Williams and Ron Buerges and has been reviewed and approved by the Finance Committee of St. Matthew UMC. It should not be construed as financial, tax or legal advice. For further information, please contact yourpersonal advisers.

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Address:  1200 Moreland Dr.
                  Belleville, IL 62223
Phone:  618-397-5994
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