Can you think of anyone who doesn’t want to reduce their taxes? I doubt it. If you’re also a generous person who often gives to charitable organizations, a qualified charitable distribution could be a great option for you. This tax-saving strategy accomplishes two objectives: donating more to causes you care about without the burden of a tax liability. It’s a win-win situation! Read on to learn more about how a qualified charitable distribution can benefit your bottom line while allowing you to support causes that matter to you.
What Is a Qualified Charitable Distribution?
A qualified charitable distribution (QCD) allows individuals who are age 70½ or older to donate up to $100,000 directly from their individual retirement account (IRA) to a qualified charity, without counting the distribution as taxable income. The $100,000 is per person per year, which means married couples can give up to $200,000 annually if they both have IRA assets to support that level of giving.
Because a QCD is a tax-free transfer of funds from an IRA to a qualified charitable organization, it can lead to significant tax savings and allow charitably inclined individuals to give more to their favorite causes. To qualify, the IRA owner must be at least 70½ years old and the charity must be a qualified 501(c)(3) organization. The donation must also come directly from the IRA custodian to the charity. If the distribution is made to the IRA owner first and then donated to the charity, it will be considered taxable income.
Why Is a QCD Beneficial for Taxes?
There are several tax benefits to making a QCD. First, the amount donated through a QCD is not included in your taxable income for the year. This can help lower your adjusted gross income (AGI), which may make you eligible for other tax benefits, such as the ability to deduct medical expenses.
Additionally, making a QCD can help individuals who are subject to required minimum distributions (RMDs) from their IRAs. Once you reach age 73, you are required to take RMDs from your traditional IRAs each year. These distributions are typically taxed as ordinary income. With a QCD, however, you can satisfy your RMD for the year while also making a tax-free donation to charity!
How Do You Make a QCD?
To make a QCD, the IRA account owner must contact their custodian and request a distribution directly to the qualified charity. The custodian will need to know the name and address of the charity and the amount to be donated. There is no limit on how many QCDs you can make in a year, as long as you do not exceed the $100,000 total. Be sure to make your distributions prior to December 31st if you want them to count toward your RMD.
Keep in mind that the IRA account owner cannot receive any benefit from the donation. This means that they cannot receive any goods or services in exchange for the donation, such as a ticket to a charity event.
What Are In-Kind Donations?
In addition to cash donations, QCDs can also be made as in-kind donations. This means that you can donate assets such as stocks, bonds, or mutual funds directly from your IRA to a qualified charity. By doing so, you avoid selling the assets first and incurring capital gains taxes. Not only are you reducing your overall tax liability, but you’re actually donating more to the charity since a portion of the funds do not have to be used for tax.
In-kind donations can be particularly advantageous for individuals who have appreciated assets in their IRA and want to donate them to charity. QCDs provide a tax-efficient way to make these donations while also supporting charitable causes.
Ready to Get Started?
If you like giving to charity and saving on taxes (who doesn’t?), then qualified charitable distributions may be a great tax strategy for you. If you want to learn more about how you can save more and give more, we would love to partner with you. At Premier Planning Group, we specialize in guiding clients along the path to financial well-being while accumulating wealth and strategically planning for the future. Your giving is a critical piece of that puzzle.
If you would like to see if a QCD is the right fit for your goals, call our office at (443) 837-2520 or email my executive assistant, Talia Grover, at email@example.com to set up a complimentary consultation.
Brion Harris is the CEO, founder, and managing partner of Premier Planning Group, an independent financial firm specializing in working with pre-retirees and retirees, helping them create customized wealth preservation and retirement distribution strategies. With over 20 years of experience, Brion has developed deep knowledge and skill in helping his clients simplify their finances and find confidence in their financial future. Brion and the Premier Planning team are known for their unparalleled client service and their dedication to building long-lasting relationships with their clients. As a result, Brion has been the recipient of the #1 Advisor Leadership Award* at Summit Brokerage Services for eight years running and has a reputation as one of the top retirement advisors in the business.
Brion is a proud 20-year resident of the Annapolis community, where he resides with his wife, Elizabeth, their three children, Addison, Jay, and Scarlett, and their two dogs, Pepper and Coco. When he’s not working, you can find him boating, skiing, traveling, and enjoying good food and music with his family. If you want to learn more about Brion, connect with him on LinkedIn.
*The #1 Advisor and Leadership Award is based on production data while at Summit Brokerage Services, Inc. Brion Harris received the award in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. This award is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.