What Are the Benefits of Making a Qualified Charitable Distribution (QCD)?

There are many ways to make a gift to charity. A QCD from an individual retirement account (IRA) can be a very efficient option to give to charity.

Generally, withdrawals from an IRA are taxable distributions. If you have an IRA, then you must begin taking the required minimum distributions (RMD) from the IRA by age 73. However, withdrawals from an IRA that are directly transferred to a qualified charity are not taxable but still count towards the annual RMD.

There are several requirements to be met in order to make the gift.

First, you must be at least 70½ years or older to be eligible.

Second, the maximum annual amount that can qualify for a QCD is limited to $100,000; this number will increase with indexing set to begin in 2024).

Third, for a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.

Fourth, contributing to an IRA may result in a reduction of the QCD amount you can deduct.

Finally, any amount donated above your RMD does not count toward satisfying a future year’s RMD.

If you are eligible to make a QCD from your IRA, there are some benefits.

They are:

• Tax Advantages: QCDs count towards the RMD but are not treated as taxable income, reducing your taxable income for the year.
• Supporting Charity: By donating directly from your IRA, you can support charitable causes and organizations that you care about.
• Reducing Tax Liability: Lowering your taxable income can potentially lead to reduced overall tax liability, this may affect how much you pay for your Medicare Premiums as well.
• Avoiding Itemized Deduction Limitations: QCDs provide a tax advantage even if you do not itemize deductions.
• Maximizing Tax Savings: If you do not need the funds from your IRA for living expenses, a QCD can be a tax-efficient way to give to charity.

As tax laws can change, it is always a good idea to consult with a tax advisor or financial professional for personalized guidance before attempting to make any QCD.

The article was written by Joe Glasman & Tony McEahern, Managing Partners, of Gilpin Wealth Management.
For questions or more information, they can be reached at 720-893-2800 or visit their website here.