Ed Menashe’s life story practically requires a world atlas to follow. Born in Milan 85 years ago of an Italian mother and Syrian father, and raised in Peru, he was working for his family’s business in Egypt in 1958 when the government of Gamal Abdel Nasser confiscated their company.
He left for Canada, where he enrolled on a scholarship at McGill University. After graduating he moved to Los Angeles and built a successful business in industrial products, but he never forgot the warm welcome he received on the Montreal campus.
Recently, taking advantage of an underutilized provision in the tax code, he established an endowment fund at the Jewish Community Foundation of Los Angeles (The Foundation) and began making significant annual gifts to benefit his alma mater, earmarked for students who would otherwise be unable to afford to attend McGill. Mr. Menashe and other taxpayers who are 70½ years of age or older and have an Individual Retirement Account (IRA), can make very generous charitable gifts—up to $100,000—and exclude the donated amount from their taxable income.
Federal law requires retirement-age taxpayers to withdraw a specified minimum amount of money from their IRA accounts each year. Known as the required minimum distribution, or RMD, the amount withdrawn is normally treated as taxable income.
However, a special provision of the tax code allows those 70½ or older to make a charitable donation of all or part of their RMD (up to $100,000 annually). When they do so, that withdrawal becomes a qualified charitable distribution, or QCD.
Charitable contributions made via a QCD do not qualify for a tax deduction. Yet, individuals taking advantage of this provision pay no taxes on the funds they donate from their IRA; the amount of the donation is excluded from their taxable income.
Those in this age group can enjoy the tax benefit of making this charitable contribution—even if they take the standard deduction and don’t itemize.
This tax strategy is especially attractive following new rules introduced by the 2017 tax law. However, the ability to donate IRA withdrawals itself is not new.
It is imperative to follow the correct procedures in order to take advantage of the exclusion. Specifically:
• You must arrange for some or all of your mandatory withdrawal to be made as a qualified charitable distribution, rather than as a standard RMD. To do so, you simply instruct the custodian of your IRA to write a check for the amount of the QCD, made out to a “public charity” as defined by the Internal Revenue Code. (A public charity in broad terms means a 501(c)(3) entity such as a house of worship, hospital, school, college, university, research center or other nonprofit that relies on broad public support.)