Qualified Charitable Distributions

Qualified Charitable Distributions


A little known tax strategy is the Qualified charitable distribution (QCD).  This is a great way for individuals over the age of 70 ½ to take their required minimum distributions (RMD), reduce their taxable income, and give to their church and/or favorite charitable organization.

This is how it works:

You contact the trustee of your Individual Retirement Account (IRA) and instruct them on how much and to what organization you want the money to go to.  The trustee sends the funds directly to the organization.  This amount is included as part or all your RMD and excluded from the taxable portion of the RMD.  The charitable deduction is taken as a reduction in income and not as an itemized deduction.

Why is this such a good idea?  Because for 2019 at 70 ½ your standard deduction is $13,800 single (or $27,000 married filing joint both over 65).  You may not have enough deductions to make it worthwhile to itemize for federal tax purposes.  What if you do still have enough deductions to itemize?  Is this still a good idea?  Yes, it can be.  This reduction in gross taxable income directly affects tax items that are subject to adjusted gross income (AGI), like taxable social security, and medical deductions.  Medical deductions are reduced by 10% of your AGI before being deductible beginning in 2019.  With a lower AGI the more of your medical deductions are deductible.

Here are a some of examples of how this works:

Using the same income amounts column one and two show the effects with medical deductions, columns three and four show the effect without medical deductions.

There are some limitations, such as the QCD is limited to the lesser of $100,000 or taxable amount of your RMD, and no more than 60% of your AGI.

The examples shown here, are using just $2,000 in charitable contributions, with a modest AGI.  This can also affect your state taxes.  These contributions can be set up as monthly, quarterly, or annual contributions and can be started stopped and adjusted anytime during the year.  If you regularly give to a charitable organization talk to your tax professional and see if you could benefit from a QCD.

– Caren Cranston, EA, CPA
Senior Manager in Tax & Accounting

Caren Cranston, EA, CPA

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