A tax-savings opportunity if you’re over 70 ½

Qualified Charitable DistributionAre you 70 ½ or older, charitably inclined, and own tax-deferred retirement accounts? If so, then you’re eligible for an often-overlooked tax-savings opportunity: The Qualified Charitable Distribution or QCD.

The 2017 Tax Cuts and Jobs Act removed years of uncertainty surrounding a provision that allows taxpayers 70 ½ or older to transfer assets from their IRA accounts directly to charity without paying taxes on the distribution. What’s more, this distribution can account for a portion of your Required Minimum Distribution (RMD) if it’s made before you fulfill your RMD for the year. The distribution isn’t treated as taxable income, thus providing tax relief particularly for those who would not ordinarily need, but were required, to take a RMD.

What if you use the standard deduction?

You can benefit from this strategy even if you take a standard deduction when filing your federal taxes. Since most people no longer have enough deductions to itemize under the new tax law, they receive no tax benefit from charitable donations. However, since the QCD allows you to exclude the donation from taxable income, it’s now the only way for those who take the standard deduction to realize a tax benefit from a charitable contribution.

The QCD limit is $100,000

Even if your RMD is less than $100,000, you may still donate up to $100,000 to a qualified charity directly from a traditional or rollover IRA. If you want to make a distribution using funds from a 401(k), 403(b), SEP, or SIMPLE IRA, you will need to facilitate a direct rollover of these funds to the IRA and then make the QCD from the IRA.

If you are married, you and your spouse can each distribute up to $100,000 from your respective qualified accounts.

Funds must be directly sent to a qualified charity

The custodian or trustee of your IRA must facilitate your distribution to qualified 501(c)(3) public charities. The IRS does not allow distributions to donor-advised funds, private foundations, or supporting organizations. Pooled-income funds, such as charitable remainder trusts, are not eligible to receive the funds.

How Wealth Dimensions can help orchestrate the strategy

As part of our regular financial planning review, we assess each client’s situation to determine the appropriateness of utilizing a QCD. During your review, expect us to do the following:

In the meantime, if you have any questions about how you can benefit from a QCD, please reach out to your Wealth Dimensions advisor and we will gladly discuss your personal situation.

 

For informational purposes only. Not intended as legal or investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000.