Case of the Week

Case:

Quentin was the firstborn child in a large family. Throughout his childhood, Quentin’s parents worked hard to put food on the table for their children. They also instilled in Quentin the value of hard work and saving money. Quentin took those lessons to heart, putting forth his best effort in school, finding a rewarding job and increasing his savings. For many years, Quentin worked for a company that offered a 401(k) plan. During those years, he put as much into his 401(k) as he could afford so that he could maximize the benefit of his employer’s matching contributions. Eventually, Quentin moved on to other employment and made a tax-free rollover of his 401(k) into an IRA. As he approached retirement, Quentin continued to contribute to his retirement savings by maxing out his IRA contributions each year.

With his lifelong penchant for saving money and some savvy investing, Quentin was able to retire comfortably at age 65. Now in his early 70s, Quentin knows he will begin taking required minimum distributions (RMD) from his IRA at age 73. Given his lifetime savings, investment income and social security distributions, Quentin does not feel as though he needs the additional income that the IRA distributions will provide – especially with the increased taxes tied to that income.

Question:

Having learned of the disadvantages of using an IRA charitable rollover gift to fund a donor advised fund (DAF), Quentin wonders if he would be able to donate from his IRA to a field of interest fund with his local community foundation instead. He likes the idea of making a charitable gift to target a specific area of charitable need and would like to use a qualified charitable distribution (QCD). Quentin calls his advisor to see if a field of interest fund gift would be a viable alternative to a DAF to receive an IRA charitable rollover.

Solution:

Quentin is delighted to hear his advisor’s response. The advisor explains that while Sec. 408(d)(8)(B)(i) prohibits distributions to DAFs, distributions to field of interest funds are not prohibited. An IRA owner who has reached age 70½ may direct a distribution of up to $108,000 in 2025 directly from the IRA custodian to a field of interest fund. The charitable organization holding the field of interest fund will then determine which charitable organization is best suited to receive the distribution to benefit that field of interest. Quentin likes this idea and decides to make his QCD to the field of interest fund.

Quentin contacts his local community foundation to start the process of using his IRA QCD to create or donate to a designated field of interest fund. He will need to indicate his intention for his IRA QCD prior to the distribution from his IRA custodian. Quentin understands that he will not have any advisory privileges over his donation, but he is able to designate the area of interest for his charitable gift to be used.