Tax-Wise Giving with Qualified Charitable Distributions (QCDs)
Are you over 70 ½ and passionate about giving to causes to care about? Do you have an IRA that's growing steadily? If so, there's a powerful strategy called a Qualified Charitable Distribution (QCD) that may help you maximize your generosity while minimizing your tax burden.
Pretend for a minute that you have a friend named Beverly. Beverly is a retired renowned dog handler who dedicates both her time and a generous portion of her charitable budget to her favorite dog rescue. Her after-tax investment accounts comfortably provide her income, and she doesn’t need additional liquidity. Now facing mandatory IRA withdrawals (RMDs) at 73, Beverly is worried about the tax implications. That's where QCDs come in.
Required Minimum Distributions (RMDs) force you to withdraw a minimum amount from your IRA each year, triggering taxes on those funds. But with QCDs, you can donate up to $100,000 directly from your IRA to qualified charities, bypassing those taxes altogether. It's essentially like writing a tax-free check to a good cause directly from your retirement savings.
So, how does this compare to traditional charitable giving? Donating directly from your pocket can be tax-deductible, but only if you itemize deductions on your tax return. Plus, there are limits to how much you can deduct each year. QCDs, on the other hand, bypass these hurdles. You don't need to itemize, and the donated amount counts directly towards your RMD, potentially lowering your overall tax burden.
As you can see, QCDs offer a unique blend of tax advantages and RMD flexibility. Let's revisit Beverly's situation. By using a QCD to fulfill her annual donation to the dog rescue, she could not only support her beloved cause but also:
- Reduce her taxable income, potentially lowering her tax bill overall.
- Minimize the impact of RMDs, avoiding unnecessary taxes on those mandatory withdrawals.
- Feel confident knowing her generous gift reaches its full potential, untaxed and impactful.
The SECURE Act 2.0 has even expanded your options. You can now direct QCDs to certain split-interest entities like charitable gift annuities or trusts, offering additional strategic giving possibilities.
Since it's the beginning of the year, you likely haven't made any charitable gifts yet. That means you still have plenty of time to strategically give this year. Consider the potential of QCDs and unlock a powerful way to make a meaningful difference while also safeguarding your financial well-being.
But remember, every situation is unique. These are conversations you’ll want to have with your financial advisor. And, if you're looking for a team that will tailor advice to your specific circumstances, let's talk.
Stu Malakoff, CFP®, CDFA®, CPFA, CRPC® I President, Bend Wealth Advisors
CERTIFIED FINANCIAL PLANNER™
523 NW Colorado Ave. Ste. 100
Bend, OR 97703
bendwealth.com
Direct 541.306.4325 I Office 541.306.4324 I stu@bendwealth.com
Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Bend Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services. Any opinions are those of Stuart Malakoff and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
Sources:
- Charitably minded investors can satisfy RMDs with QCDs. https://www.raymondjames.com/commentary-and-insights/estate-giving/2024/01/09/charitably-minded-investors-can-satisfy-rmds-with-qcds
