Some of your donors have money coming out of their retirement accounts this year that they didn’t ask for and may not need. The IRS requires it. It shows up on their tax return either way.
Unless they give it to you.
Required Minimum Distributions are predictable, recurring, and often overlooked by nonprofits. For donors who don’t need the income, a Qualified Charitable Distribution lets them send it straight to a charity instead, satisfying the requirement without adding to their taxable income.
In this article, we’ll explain how RMDs work, why they matter to your donors, and how to make sure your organization is the one they choose.
What Are Required Minimum Distributions (RMD)?
The government doesn’t allow individuals to keep retirement funds in their account indefinitely. After a certain age, most people are required to withdraw a set amount from their holdings each year. This includes accounts such as IRA, SIMPLE IRA, SEP IRA, and other retirement plans. If the RMD is not met, the amount not withdrawn will be subject to a steep IRS penalty.
This means that even if they don’t have a need or designated reason to spend that money, some taxpayers are required to withdraw money every year. And even though they are avoiding penalties by withdrawing the minimum amount, some people will endure an increased tax burden because the distribution increases their taxable income.
How Can a Required Minimum Distribution Increase the Taxpayer's Burden?
There are several reasons why somebody may not want to claim their RMD.
- Taking the RMD can push some retirees into a higher tax bracket, causing their tax burden to increase
- The RMD increases the taxpayer’s modified adjusted gross income (MAGI), which could trigger an additional Medicare surtax or increase in Medicare premiums and costs substantially
- The rise in taxable income could lead to an increase in taxes on Social Security Benefits
When individuals find themselves wanting to avoid additional tax burdens or simply don’t have an immediate need for the withdrawal, many choose to make a qualified charitable distribution. In doing so, they get to make an impact on a mission they love and reap the tax rewards too!
What Is a Qualified Charitable Distribution (QCD)?
A qualified charitable distribution is a direct transfer of funds from an IRA account that is paid directly to an eligible charity (note: Donor Advised Funds and Private Foundations often do not qualify). This differs from a normal donation in the sense that it does not provide a charitable deduction for taxpayers. Instead, the donor is not required to report that money as taxable income, therefore lowering their tax burden.
A QCD can fulfill the RMD requirement. It can count as all or part of the required withdrawal amount, making it a great option for people who don’t want a rise in their taxable income.
QCDs are only available to IRA owners who have reached a certain age, and required minimum distributions start at a later age than that. The IRS sets both thresholds, and Congress has changed them before. For the current requirements, check IRS Publication 590-B, which the IRS updates each year.
5 Tips to Attract RMD Donations to Your Nonprofit This Year
1. Have the right donation processes in place.
Make sure you have the right donation processes in place before a donor comes to your doorstep. You want to look professional and be able to expedite a quick turnaround for your donor. From the language you have on your website, to knowing how to facilitate the transfer, to sending your thank you card, each step should be written out. That written process should be understood by all of your development and finance team.
The best way to do this is to work with your nonprofit investment advisor to make sure you are ready to guide your major donor through the donation process.
2. Let them know this option exists.
Many retirees don’t know they can make a donation directly from their IRA and receive great tax benefits. And if they never hear about it, they can never act on it! It’s important to educate your donors on all the different ways they can get involved and support your mission.
Ensure you have this option listed everywhere! Some good places to start are:
- Remit Envelope
- Print Materials - Like our free QCD mailer template!
- Website "Ways to Give" Page (download a free template here!)
- Printed program at a special event
- Donor pamphlets or brochures
- Donor welcome series
- Footer of your email (bonus if it has a link to your landing page: read on for more on this tip!)
- Community presentations and outreach events
- Major donor communications
- Monthly / recurring donor thank you’s
You can even write a special article about RMDs and QCDs and highlight it in your next supporter newsletter. Showcase how these major gifts have helped grow your endowment and impacted the mission you serve!
It’s important to create an easy to find and clear call to action. Let them know that this option is available to them, that it is an easy process, and who they can contact to make it happen. Plant the seed early and frequently so when they are ready to make a donation, your number is the first thing that comes to mind.
Bonus tip: Talk about all the unique ways to support your organization loud and often. You never know who will resonate with a particular channel. Your donors will need to hear it several times before they decide to act, so make sure it is communicated everywhere.
3. Create a landing page.
We recommend creating a landing page for unique donations such as this. Donors will often have questions and sometimes feel more comfortable looking on the web before reaching out. Have a designated page on your website where you can direct people that have questions. You can make a QR code or friendly URL to showcase in brochures and printed materials.
Want to get a template that has the language you need to properly explain these types of unique gifts? Download our free "Ways to Give" Landing Page template and use it to build your own page.
We mentioned it earlier, but we’re going to say it again: remember to make the process easy and have a clear call to action. You don’t want to confuse the donor or make them waste any more mental energy than they have to. Have clear information on the landing page and direct them with simple steps. Make their donation process a positive and empowering experience so they tell their friends and do it again!
4. Segment your donors.
Take a look at your current donor base.
If your database tracks birth dates, start by pulling the donors who meet the current QCD age requirement. If it doesn’t, you can still build a solid list. Start with:
- Donors who have given consistently for 20 years or more
- Legacy society members, or donors who have mentioned estate plans
- Donors who have told you they’re retired
- Donors flagged as older or high-capacity in a past wealth screening
This is the group of people who will be the most receptive to this message. These topics are already on their mind and your suggestion may trigger a longing in them to make a gift of this kind! Make highlighting this option to this segment of donors a regular part of your communications plan.
5. Foster relationships with local financial advisors, CPAs, and estate attorneys.
Once you’ve created your processes, have communications in place, and reached out to your current eligible donor base, it’s time to build a referral network.
Begin to build relationships with local investment advisors, CPAs, and estate attorneys. Introduce yourself and let them know that you would like to give them information on your amazing organization, just in case any of their clients are in need of a charity to support. If an individual doesn’t have an organization they already love, they may ask their advisor for recommendations. Remember that year-end is a busy time, so plan ahead and start preparing late summer.
Engage with these advisors to foster a relationship and ensure your organization is always top of mind. Make sure they understand the basics of your mission and the huge impact major donations can have on your organization. They may turn into a donor themselves!
Create a brochure, packet, or cards they can keep and give out to prospective donors. Let them know your door is always open if they, or one of their clients, has any questions. Include them in your supporter communications (with their permission, of course), so they stay up to date on all the great work you are doing.
The RMD rule creates a unique situation for some taxpayers. They are required by law to withdraw a certain amount of funds from their retirement account.
By communicating with your supporters, building a referral network, and having the right processes in place, you can capitalize on these distributions and increase major gifts to your organization.
Download our free QCD Appeal Letter to communicate this giving avenue with your donors easily!
For up-to-date information on RMD, visit the IRS website.
Looking for a Financial Advisor for Your Nonprofit?
If you are currently looking for help with financial planning, contact us. We are happy to schedule an introductory meeting at your convenience.
