Retirement-age individuals and couples may discover that they do not need income from their traditional IRAs in certain years. Their other sources of income may be sufficient to cover their cost of living and other financial-based goals. Regardless, starting at age 72, the IRS requires traditional IRA owners take annual income withdrawals, known as Required Minimum Distributions (RMDs). If you do not want to take the RMD, there is a unique option for those who are charitably-minded. You can donate the distribution directly to charitable organizations though a Qualified Charitable Donation (QCD).
Why Wouldn't I Take my RMD?
A person may not want this required IRA income because the withdrawals are subject to ordinary income tax. In addition to increasing the amount of taxes you will pay, increased taxable income may push you into a higher tax bracket. A higher tax bracket can have adverse impacts on Social Security payments and Medicare benefits. See our articles Personalized Social Security Guide, Medicare & Income Levels and Medicare Premiums in Retirement to learn more about this.
On the other hand, failure to take these required withdrawals could subject IRA owners to stiff penalties. This can leave a taxpayer in a tricky situation, and one of the most easily available solutions is to make a Qualified Charitable Donation (QCD).
How to Make a QCD
It is relatively simple to make a QCD from your IRA RMD. Scroll over the icons below to learn more about each of the 4 steps.
Select the Charity
Determine the Amount
MFJ couples each qualify for an annual QCD of up to $100,000.
Use Your Plan Administrator
Tell Your CPA
Qualified Charitable Donation and Taxes
For some donors, a QCD provides greater tax savings than cash donations, for which charitable tax deductions are claimed. This is because Adjusted Gross Income (AGI) is reduced when making a QCD. AGI is used in several key calculations, such as determining the taxable portion of Social Security benefits or what deductions and credits donors qualify for receiving. In addition, a QCD allows a donor to receive a tax benefit from a charitable contribution even if the donor does not itemize deductions. This is the result of the QCD being excluded from taxable income.
Prepare for Retirement with Peace of Mind
If you’re already retired and wondering if a QCD is the right option for you, be sure to talk tot your CPA. Everyone’s situation is different and it’s important to choose the option that makes the most sense for you.
If you’re still preparing for retirement, there are many things to consider – predicting the economy, estimating your future lifestyle needs, setting the goals for how you want to live and what legacy you want to leave. Using an IRA is only one of many ways to save and prepare. If you’d like to set up a meeting to make your wealth management and retirement plans, please click the button below.
Kim Pendley
Kim is a valued member of our CAS and tax teams. If you’re a business owner and your books are a mess – Kim can fix it. She has 25+ years of experience in nonprofit & governmental accounting and financial reporting as well as individual taxation (specifically LLCs or rental property).
