Qualified Charitable Distributions: A Hidden Gem in Your Financial Plan

Designated funds and field-of-interest funds may not always be top of mind when you are developing philanthropy plans for yourself and your family, but they are extremely valuable tools in certain circumstances and it’s important to be aware ofwhat the terms mean.  

You can establish a field-of-interest fund at the community foundation for a charitable purpose of your choice. For example, a field-of-interest fund can be established to support research for rare diseases, to support organizations that assist homeless families in getting back on their feet, to enable art museums to acquire works that celebrate the region’s diversity, and so on. The knowledgeable team at the community foundation distributes grants from the field-of-interest fund according to the spending policy you’ve set to further your wishes. You can select the name of the fund, whether you wish to use your own name (e.g., Samuels Family Fund or Samuels Family Fund for the Arts), maintain anonymity (e.g., Maryville Fund for the Arts), or something else altogether (e.g., Bettering Our World Fund).      

A designated fund at the community foundation is a good choice if you know you want to support a particular charity or charities for multiple years. This is useful so that the distributions can be spread out over time to help with the charity or charities’ cash flow planning, enable you to benefit from a larger charitable tax deduction in the current year when your tax rates are high rather than spreading it out over future years when tax rate projections are lower, or both. You will specify the charities to receive distributions according to a spending policy you select, and you can choose a name for the fund.  

Perhaps one of the most compelling reason, if you are retirement-age, to consider establishing a field-of-interest fund or a designated fund is to take advantage of theQualified Charitable Distribution planning tool. For people who own Individual Retirement Accounts (IRAs), “Required Minimum Distributions” are required each year beginning at age 72, whether or not you need or want the income. These distributions often cause an increase in income taxes.   

A Qualified Charitable Distribution permits you to transfer up to $100,000 from an IRA to a qualified charity instead of taking a Required Minimum Distribution, thereby avoiding the income tax hit. Although the IRS does not permit Qualified Charitable Distributions to donor-advised funds, charities eligible to receive a client’s Qualified Charitable Distribution do include designated funds and field-of-interest funds at the community foundation.