Considering a Qualified Charitable Distribution

Giving with Greater Benefits

Over the past few years there have been some changes to the rules around required minimum distributions (RMD) from IRAs:

• The SECURE Act changed the date of when RMDs begin. It used to be the year in which the IRA owner turned 70 ½ and is now the year the IRA owner turns 72.
• The CARES Act took the word ‘required’ out of RMD by allowing IRA owners to choose to NOT take their RMDs in 2020.

The benefit of these changes allowed IRA owners to have a lower tax liability. But that opportunity still exists in the form of a Qualified Charitable Distribution (QCD). IRA owners can make a donation to a qualifying¹ charity and have it count toward their RMD. This is a wonderful opportunity for individuals in RMD status that already donate or are considering donating to a charity and do not need the RMD for their living expenses. The IRA owner receives 3 benefits:

1. Satisfy all or a portion of their RMD
2. Lower their taxable income
3. Donate to the qualifying charity of their choice

Donating IRA funds directly to qualified charities allows the IRA holder to avoid taking possession of the funds and the tax bill that comes with it. QCDs are available to Beneficiary IRA account owners as well. Another potential benefit of the QCD is reducing the tax liability of other sources (such as Social Security) which may possibly lower Medicare Part B and D premiums.

Unlike other forms of charitable giving that require itemizing deductions on your tax return, QCDs do not have to be itemized. Therefore, the IRA owner can claim the standard deduction AND exclude the amount of the QCD from their income.

Each individual’s situation is unique and it is important to talk with your tax advisor to explore if a QCD can be a tax saving tool. If you are considering donating all or a part of your IRA required minimum distribution to charity, you need to take action before year-end. Give us a call and we will review your situation and offer tools and resources to help further understand this tax planning tool.

¹The charity must be “qualified”, i.e. it is a charity described in Internal Revenue Code section 170(b)(1)(A), excluding organizations described in Code section 509(a)(3) and organizations that are donor advisor funds as described in Code section 4966(d)(2).