Give Back this #GivingTuesday with a Qualified Charitable Distribution
Giving Tuesday is a time to reflect on the causes that matter most and how we can make a meaningful impact. For those who are 70½ or older, there’s a way to give, generously and strategically, through a Qualified Charitable Distribution (QCD).If you do not need all the money from your IRA required minimum distribution (RMD), making a charitable gift may be a tax-efficient way to support causes and organizations that are near and dear to your heart.
Why consider QCDs? If you have an IRA, you must take RMDs, whether or not you need the funds. When you take an RMD from an IRA, it creates taxable income. Increasing your income could push you into a higher tax bracket and may impact your ability to take certain tax deductions and potentially, taxes on your Social Security and your Medicare premiums. While QCDs aren’t eligible for charitable tax deductions, they are not included in your taxable income like other IRA withdrawals are. They do count toward your annual RMD from your IRA. When you use your RMD to make a QCD, your taxable income is reduced dollar-for-dollar. This approach to charitable giving helps you save on taxes while supporting your philanthropic goals.
Consider Qualified Charitable Distributions (QCDs) if:
- You have charitable intentions
- You must take a required minimum distribution (RMD) from your individual retirement account, but don’t need all the funds
- You would like to reduce your future RMDs by lowering the balance in your IRA
- You have already donated the maximum allowable percentage of your adjusted gross income (AGI) (60% for most taxpayers in 2023)
- You wish to make a larger charitable gift than is possible by donating cash or other assets
- You’d like to make a large donation immediately, and you’ve already identified the qualified charities you wish to support
Watch out
- Your chosen charity must be 501(c) (3) qualified to receive QCDs before donating. Be sure to get an acknowledgement of the gift for your records.
- Funds must be transferred directly from the IRA to the charity to avoid tax complications. As the donor, you can receive a check in the charity’s name and send it in. However, you cannot receive the funds in your name, then write a separate check to the charity.
- The QCD limit for 2023 is $100,000 per IRA account. Beginning in 2024, QCD limits will be indexed for inflation.
- You cannot take a charitable deduction on your taxes for making a QCD.
- Your QCD must be completed in the current tax year, and by the same deadline as a normal RMD, usually December 31.
- Make your QCDs early in the year. Due to the “first dollars out” rule, which says that the first dollars distributed from your IRA count toward your RMD, timing is everything. In other words, if you take withdrawals from your IRA early in the year, you may use up your RMD before you can make your QCDs. Once you’ve taken your RMD, it cannot be retroactively.
Final Thoughts
Contact us today to see if a QCD fits into your financial plan. We’re here to help you maximize your impact while making the most of your retirement income.
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
