February Financial Planning Tip

When planning your IRA withdrawal strategy, you may want to consider making charitable donations through a Qualified Charitable Distribution, or a QCD. In addition to the benefits of giving to charity, a QCD excludes the amount donated from taxable income, which is unlike regular withdrawals from an IRA. Keeping your taxable income lower may reduce the impact to certain tax credits and deductions, including Social Security and Medicare. In order to qualify to be able to make a QCD there are a few rules and guideline to adhere to:

  • The IRA owner must be at least age 70 ½ to do the QCD…not merely turning 70 ½ that year.

  • Maximum dollar amount of a QCD is limited to 100,000 per year per taxpayer.  Married couples could each do 100,000 from his/her respective IRA’s.

  • Only distributions from IRA are eligible (can’t do SEP/ Simple IRA if still “active” or other retirement plans).

  • The Distribution must go to a public charity (can’t go to charitable supporting organization or donor advised fund.

  • Can’t receive any kickback or other “quid pro quo” benefits for the donation.

  • The charity should ideally cash the QCD check by 12/31.

  • In order for the QCD to satisfy the RMD obligation, the QCD should be the first distribution for the year.  The first distribution that comes out of an IRA for the year is presumed to satisfy the RMD.  So it doesn’t have to be the first of the year, you just need to make sure you still have an RMD obligation that the QCD can satisfy.  For example, If you had an RMD of $10,000 and you took a distribution at the beginning of the year to satisfy it and then realized it would have been better to do a QCD instead, you can’t undo the prior distribution.

  • The QCD can be used to satisfy all or part of the RMD.  Any QCD’s over the RMD amount cannot satisfy future years RMD’s.

  • The check must be made payable to the charity.

  • The IRA custodian is not required to specially identify the QCD on your annual 1099-R so the responsibility is on you to inform your taxpayer that you performed a QCD.

The benefits to completing a QCD can help in several aspects of your financial plan including but not limited to:

  • The distribution comes out of the IRA without any tax consequences (excluded from income altogether) No charitable deduction.

  • The QCD satisfies the RMD.

  • Ordering Rules – any QCD from an IRA is deemed to come from the taxable portion of the account first (as opposed to the typical pro rata rule.  All IRA accounts are aggregated together to determine the total taxable amount.

  • It could reduce the taxability of Social Security benefits if the QCD drops your combined income to less than 44k (AGI + nontaxable interest = ½ of Social Security benefit)

If you take the standard deduction and you do distributions from an IRA to make the charitable contribution then QCD makes sense.
As always, a tax advisor can help you determine if both your IRA and charity qualify for QCDs. We are more than happy to also discuss how a QCD fits into your current financial plan and can help you determine the best course of action!
January Financial Planning Tip

Get ready to save more for retirement in 2019! The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2019, and there are a lot of changes that will help savers stuff these accounts.

If you have any questions on these new limits or want to talk about how additional savings can impact your overall plan, give us a call at the office to review your situation and savings strategy!

Contact us for a free consultation!