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Qualified Charitable Distribution

[/fusion_text][fusion_text]I am starting to hear more interest from clients in qualified charitable distributions (QCDs). I am a big fan of them and thought I would spend a couple of minutes explaining how they work and who might benefit from using them. I predict that within a few years, a QCD will be the second most popular way to get an added tax benefit from a charitable donation (donating appreciated stock will still be number one).

A qualified charitable distribution is a charitable gift sent directly from a Traditional (not Roth) IRA to the charity. This is still a relatively new option, as it was just made permanent starting in 2016. Before that the tax move was extended year-by-year, often in December, which made planning difficult. In order to qualify for a QCD, the giver must be over 70.5 years old and the gift cannot go to a private foundation or donor advised fund. Your QCD is also limited to $100k per year. It does count towards your required minimum distribution, which is nice.

Normally you are taxed on any distributions from your IRA, but this distribution is not taxed. You don’t get to take an additional charitable deduction for it in your itemized deductions, but there can still be an added benefit to it. You can thank our complicated tax code for that. It turns out that many tax credits, deductions, and even your Medicare premiums depend on an income line (adjusted gross income) that comes before a regular (non-QCD) charitable deduction. That means that there might be a benefit to avoiding the income in the first place through a QCD, but it takes a tax projection to know for sure.

Who should look at using a qualified charitable distributions? Consider it if…

  • Most of your retirement assets are in IRAs/401(k)s
  • Your adjusted gross income (end of page1) is near $170k (married). That’s the level at which Medicare premiums go up.
  • Your charitable deductions are otherwise limited.
  • Your ability to deduct medical expenses is limited by your income.

If all of that sounds like Greek, ask your CPA and your investment advisor if there is an additional benefit for you to using a qualified charitable distribution. Both this move and gifting appreciated stock to charity are smart moves. It takes a little math to find out which one is the better move for you.[/fusion_text][separator style_type=”single” top_margin=”” bottom_margin=”” sep_color=”” icon=”” width=”” class=”” id=””][fusion_text]

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. ASA gathers its data from sources it considers reliable. However, ASA makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.