It is inspiring how much is done, built, and bettered by the generous donations of our clients and friends. Those donations help good causes and people all over the World, and as you near retirement, a little planning in connection with your charitable gifts can also help your tax bill, with Qualified Charitable Distributions (QCD’s). We recommend that everyone over the age of 70 ½ consider QCD’s when making charitable contributions, and the beginning of the year is the time to do it.
So, what is a Qualified Charitable Distribution and why should I do it?
A QCD is a direct transfer from your IRA to the charity of your choosing. QCD’s have grown in popularity because of their high limit ($100,000 per year, per person) and their ability to decrease on the required minimum distribution (RMD).
Donations made as QCD’s essentially decrease your RMD. In essence, donations made as QCD’s lower your taxable income as they count towards your RMD. Essentially, for those in the 24% tax bracket, every $1,000 QCD effectively saves $240 in taxes by keeping that $1,000 out of your income. [1]
You should know that QCD’s can be tricky, so here are some tips if you are interested.[2]
- Talk to us now!
There is a timing element to taking advantage of qualified charitable donations. The first withdrawals of the year are considered part of your RMD and a QCD cannot be applied to that amount retroactively. It is important that any QCD’s are made early in the year for the QCD to count towards your RMD.
- Be wary if this is your first year with RMDs.
QCD’s cannot be taken before the age of 70 ½. In fact, QCD’s are not available until the day you turn 70 ½, not the year! So, it is worth working out when your half birthday is so you know exactly when you will qualify and can take advantage (you may need to move fast if that date falls late in the year).
- Don’t put off your first RMD.
If you will be turning 70 ½ in 2019, you have the option of delaying your first RMD until April 1st of 2020, but in most instances we do not recommend waiting. If you delay, you will be taking your first and second RMD in 2020, driving up your taxable income (and possibly your taxes). Additionally, you will have given up the QCD option for 2019 (as you did not withdraw any funds from the IRA account).
There is every reason in the World for making donating easier, and less taxing, so let us help you plan your QCD’s for this year.
If you have any questions, please call or contact us.
*This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
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[1] Webb, Kevin. “5 Often Overlooked Tax Strategies as You Approach Retirement”. Kiplinger. https://www.kiplinger.com/article/retirement/T055-C032-S014-5-often-overlooked-tax-strategies-for-retirement.html?rid=EML-today&rmrecid=2903083568
[2] Slott, Ed. “Early Planning of Qualified Charitable Distributions Produces Better Tax Results”. Investment News. https://www.investmentnews.com/article/20190108/FREE/190109955/early-planning-of-qualified-charitable-distributions-produces-better