By Mary P. Walker, Petrus Blog Contributor
I love the TV show The Profit. Marcus Lemonis, a serial entrepreneur, invests in struggling businesses and offers advice on how to turn things around. Often even small adjustments in managing people, capital, or processes yield amazing results.
Following Marcus’ lead, I’m proposing a small tweak in your development efforts that could pay off big time! With just a bit of effort and minimal expense, you can educate and invite your partners in ministry to consider gifts from their IRA Required Minimum Distributions (RMDs).
The idea behind RMDs is that the government usually requires a person to “spend down” a retirement fund over the course of his or her life (exception, Roth IRAs). Of course, the government can’t predict when a particular person will die (and I for one am happy about that!), but it can use data to estimate a life expectancy. The amount a person is required to “spend down” by taking money out of the fund each year depends on (1) how much is in the fund; (2) how much longer the person is expected to live.
Imagine that you have a potential benefactor who is over 70 years old. Her pension, social security, and a traditional IRA let her pay her bills and enjoy a comfortable lifestyle. As the end of the year approaches, she may not have “spent down” her IRA enough. If not, she will need to withdraw more money, at least up to the level of the Required Minimum Distribution (RMD) from her IRA. If she doesn’t, she could be liable for significant taxes.
Wouldn’t you like to offer her a way to invest in your mission AND avoid tax liability? Of course you would!
Disclaimer: I am not an accountant or lawyer. Anybody considering donating all or part of their RMD should consult to their financial advisor for a complete understanding of the process and ramifications. BUT I DO KNOW about the transforming power of RMDs when they are donated to charitable organizations.
Here are some facts about RMDs from none other than the IRS:
- You can’t keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from IRAs, SIMPLE IRAs, SEP IRAs, or retirement plan accounts when you reach age 70½.
- The required minimum you must take out of an IRA in a given year (RMD) is calculated based on life expectancy and the amount in your account. The IRS provides a worksheet here to help you easily calculate this amount. If you would like to use these IRA funds to directly support a charitable organization, the fund administrator must DIRECTLY send the money to the organization. You cannot receive the funds first.
These funds to charity “count” toward the RMD, but do not count as taxable income, as they otherwise would. If you itemize, you cannot take this charitable gift as a deduction.
Let’s do just a bit of simple math:
Assume a person is 75 years old and has $500,000 in a traditional IRA.
According to the IRA worksheet, their RMD would be almost $22,000! Imagine the impact if even half of this would be gifted to your ministry…! And, imagine the impact if you have two, three, five, or ten potential benefactors in a similar situation!
Get the Word Out!
So, how can you get the word out to your potential benefactors? Some ideas:
- Publicize this giving option in your newsletters and other general communication to your supporters. Let your potential benefactors know that this way of giving might work well for them. But please, use a simple font and BIG PRINT! I saw a wonderful notice about RMDs in a diocesan newspaper. However, the print was so small that I couldn’t read it! Remember, most folks use reading glasses by the time they reach their late 40s, and your audience for this information is the over 70 crowd.
- In face-to-face calls, bring the subject up with those in the right age group. They probably don’t know this is an option or have not associated this way of giving with your ministry.
- If your data allows you to identify retirees, consider a simple appeal letter in the early fall. Let them know about RMDs in general, give them the IRS website, and the legal name and address of your ministry—so they can direct the administrator of their IRA where to send the gift. In other words, make it VERY easy for them to make a gift.
- Follow up with two or three email reminders as the year winds to a close.
- Repeat. If a potential benefactor has never considered using RMDs for gifts, the idea may take some getting used to. And, every year, more folks will turn 70.
According to my FAVORITE fundraising educator, Tom Ahern, the typical benefactor is 75 years old. That means he/she is probably retired, or is married or widowed to someone who is or had retried.
Over 40 million households have IRAs. Surely some of them already support your ministry. Invite them to have a greater impact.
What are you waiting for?
Mary P. Walker is a member of the Petrus Blog Contributor Program. She has published hundreds of articles in Catholic and secular publications. After a career in technical marketing with IBM, she was the communications specialist at St. Mary’s Catholic Center at Texas A&M for nearly ten years. During that time, the base of donor support grew five-fold. Presently, she serves on three nonprofit boards.
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