If you are age 72 (or turn age 72 this year), you are required to take minimum distributions (“RMDs”) each year from your regular IRA and you have to pay income tax on those distributions. However, individuals who choose to make qualified charitable distributions (“QCDs”) which reduce the amount they are required to withdraw by distributing from their regular IRA directly to a charity. So if you’re required to withdraw $20,000 in 2020, but you instead direct your IRA custodian to distribute $20,000 directly to a charity, you don’t have to withdraw any funds for yourself, and you don’t have to pay any income tax on the amounts transferred.
You won’t get a charitable deduction for the amount you donate in this way. However, donating directly from an IRA may be better than taking a distribution and then making a donation, because it results in a lower adjusted gross income – which can help you avoid taxes on Social Security benefits, reduce your Medicare premiums, limit the 3.8% surtax on investment income, and qualify for other deductions and credits. In addition, donating from an IRA is definitely to your advantage if you otherwise wouldn’t be eligible for a charitable deduction, either because you don’t itemize your deductions or because you’re subject to the charitable deduction “phase-out” for higher-income taxpayers.