Required to take an IRA distribution? Like to be charitable?
A popular way to transfer IRA assets to charity is via a tax provision which allows IRA owners who are 701/2 or older to direct up to $100,000 per year of their IRA distributions to charity. These distributions are known as qualified charitable distributions, or QCDs. The money given to charity counts toward the donor’s required minimum distribution (RMD), but doesn’t increase the donor’s adjusted gross income or generate a tax bill.
Keeping the donation out of the donor’s AGI is important because doing so can:
(1) help the donor qualify for other tax breaks (for example, having a lower AGI can reduce the threshold for deducting medical expenses, which are only deductible to the extent they exceed 10% of AGI (for 2018 and thereafter))
(2) reduce taxes on the donor’s Social Security benefits
(3) help the donor avoid a high-income surcharge for Medicare Part B and Part D premiums (which kick in if AGI is over certain levels); and/or reduce state tax, if you are in a state that does not allow a deduction for charitable contributions.
Further, because charitable contributions will not yield a tax benefit for those taxpayers who no longer itemize their deductions (thanks to the larger standard deduction for 2018 and thereafter), those who are age 701/2 or older and are receiving RMDs from IRAs, may gain a tax advantage by making annual charitable contributions by way of a QCD from an IRA. This charitable contribution will reduce RMDs by a commensurate amount, and the amount of the reduction will be tax-free.
If you would like to discuss any of these techniques, please call.