For retirees looking to optimize their charitable giving while managing their tax burden, Qualified Charitable Distributions (QCDs) offer a compelling strategy. Available to individuals aged 70½ and older, QCDs allow you to donate up to $105,000 annually directly from your Individual Retirement Account (IRA) to eligible charities.
The primary advantage of QCDs is their ability to satisfy Required Minimum Distributions (RMDs) from your IRA. Normally, distributions from a traditional IRA are taxable when received. With a QCD, however, these distributions are tax-free.
By reducing your Adjusted Gross Income (AGI), QCDs can have a cascading effect on your overall tax situation. A lower AGI may result in reduced taxation of Social Security benefits, lower Medicare premiums, and increased eligibility for certain tax deductions and credits that phase out at higher income levels.
To make a QCD, instruct your IRA custodian to make a direct transfer to the Foundation. It’s crucial that the funds go directly to the Foundation; if you withdraw the money first and then donate it, you’ll lose the tax benefit. Keep in mind that QCDs are limited to IRAs and inherited IRAs; they cannot be made from 401(k)s or other employer-sponsored retirement plans.
When planning your legacy, consider incorporating QCDs into your long-term giving strategy. You can use QCDs to support multiple charities each year, potentially creating a lasting impact to causes you care about, while efficiently managing your retirement accounts and tax liability.
Want to learn more? Set up a free one-on-one consultation to discuss charitable giving strategies. Contact Monika at 610-744-1015 or email mcollins@delcofoundation.org.
