QCDs: The Smart Way Seniors Can Reduce or Eliminate Taxes EVERY YEAR on IRA “Required Minimum Distributions”
By Dr. Don Calhoun
Finally, the IRS has cut seniors a well-deserved break!
When we reach age 72, we must begin taking a fully taxable Required Minimum Distribution (RMD) from any tax-deferred accounts we have… but after we reach 70½ we can take up to $100,000/year as a tax-free Qualified Charitable Distribution (QCD), that after age 72 counts toward our RMD.
As a result, many seniors find QCDs as the least costly way to make charitable contributions, since:
We can first pay any estimated income taxes from our RMD, even in December.
Then, a Qualified Charitable Deduction (QCD) can be paid directly to the charities we wish without the RMD funds even being reported as Adjusted Gross Income (AGI) or as Taxable Income on our tax return that year.
So, a QCD will not be taxed… nor will it increase our tax rate on any other income we have from investments, Social Security, annuities, a pension or work we do.
And since a QCD doesn’t affect our AGI, our Medicare premiums are not increased.
Nor will a QCD move us into the 3.8% Net Investment Income additional tax.
Also, since a QCD is not shown as income or as contributions on our tax return, QCDs do not count in the IRS limits on how much we can give to charity each year.
And, since you don’t need to itemize deductions to benefit from a QCD contribution, you may be able to save taxes by using the new and higher Standard Deduction.
So, if you have reached age 70½ and have Qualified tax-deferred IRA accounts and want to save taxes by taking a QCD, you can just ask your IRA Account Custodian to pay your QCD directly to one or more charities of your choice, or consider…
The “Harvest Fund” that is offered by Christian Foundation of America (CFA). Because QCD gifts cannot be added to a Donor Advised Fund (DAF), CFA created a special Designated Fund to accept QCD Gifts. The Harvest Fund is restricted to specific purposes and it offers tax-free investing.
Contact the CFA in Westlake Village, CA, at 805-523-9087 or [email protected] to discuss their Harvest Fund that can accept QCDs with options to invest the account, if you wish, and to support various charities within your restricted purpose, even in future years or after death while receiving tax benefits right away. And CFA can also assist donors in creating Charitable Trusts and in finding candidate charities that meet their wishes regarding how they’d like to leave their legacy.
If you are a younger donor or a senior who has other appreciated assets (like stocks, mutual funds, ETFs or real estate), you can avoid capital gains tax on their increased value by making a charitable transfer of those assets to a Harvest Fund or DAF. Each offers a full tax deduction on the amount transferred and avoids capital gains taxes on any growth. The funds can then be invested tax-free and gifted to specific end-charities when you wish, even in later years and/or over several years.
You as the Donor receive tax deductions for each deposit you make to a Harvest Fund or DAF, even if you don’t transfer those funds to specific end-charities for years… or even until after you have passed. And a Harvest Fund or DAF offers lifetime tax deductions that aren’t available on assets that are gifted from your estate.
If this is all new to you, let us know and ask any questions.