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  • Writer's pictureRev. Beth Galbreath

Where Can We Get the Money?

“We’d like to install solar/rain barrels/a rain garden/point of use water heaters/insulation – but there’s no room in the budget!”

“Our people are elderly; they’re giving all they can.”

Maybe not.

The reality is, your congregation may have a large-project income stream hiding in plain sight. It just takes planning to access. I’m talking about RMD’s from Traditional IRA’s: Required Minimum Distributions from traditional Individual Retirement Accounts.

The tax-deferred Traditional IRA was established in 1974 by the Employee Retirement Income Security Act. It allowed workers to contribute a limited amount of pre-tax money every year to an IRA set up at a bank or brokerage or mutual fund. The account grows tax-free until the money is withdrawn upon retirement, at which time income tax is due.

The assumption was that a full-time worker would benefit from delaying tax liability until retirement, when, it was expected, both income and the person’s tax bracket would be lower.

Later, the Roth IRA was established, in which contributions of after-tax income would grow and be withdrawn, tax-free, after retirement. So the two arrangements are in some ways opposites.

Here we’re talking about Traditional IRA's. The law says that when a person withdraws money from such an IRA, it's taxable as income. But what if the owner is doing just fine, thank you, and doesn't need to withdraw the money at retirement?

"Aha!" Says the government. "We can't have that!" So, when a person reaches the age of 70 1/2- Seventy years, six months - they are required to receive a minimum distribution - RMD - and pay taxes on it. And that can, contrary to expectations, kick a person into a higher tax bracket - even a higher bracket than they had while working, if they were faithful in salting away savings!

Therefore, if your congregation has leading-edge Baby Boomers approaching the age of 70 1/2, they may be suddenly facing a seriously increased tax bill if they don't have a worthy cause to which to donate the RMD. But, they avoid taxes entirely on the RMD if they roll it over directly to your church!

RMD's are calculated by an age-related formula based on the value of the account on December 31 of the year before the RMD is due. This means that the best time for a stock-based RMD rollover is in a year when the stock market is rising and higher than it was on Dec. 31, so each dollar's RMD donation costs fewer stock or mutual fund shares. It's not ideal when the market was high on December 31 and then plunges in the new year - but ideal or not, the law requires that RMD amount to be paid, even though each dollar will cost more shares.

And the tax benefit of an RMD rollover to the donor is the same either way.

For example: The solar installation on the roof of the building of Compassion UMC was a gift from an RMD rollover made by a retired pastor who had always had modest income, and lived frugally, but worked hard to make the maximum IRA donations every year. The RMD rollover for the $35,000 solar system benefited the church and the donor, since the gift prevented a higher tax bracket, avoided taxes on the RMD, and counted as a charitable donation that returned about a quarter of its cost as a direct tax refund!

Therefore, I invite you to dream big and include your older members in your dream. Show them how an RMD rollover can benefit them and achieve a big dream in your church! Involve them in your green team. Cast the vision for a roof covered with lovely electricity-generating solar cells, or a parking lot of permeable paving, or a rain garden, or energy improvements of many kinds.

And get your plans together ahead of time so that when they reach 70 1/2, or when the market rises after a plunge, they are ready to execute the rollover and you are ready to execute your dream!

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