QCD – Qualified Charitable Donations

If you are a retiree or near retirement age and you’re reading this, chances are you have an IRA. Once you reach a certain age, you must take a Required Minimum Distribution (RMD) from your IRA. For years, the RMD age was 70.5 years of age. After the passage of The Secure Act in 2020, the RDM age was raised to 72. 

Many IRA holders at this age are rightfully concerned about the taxes on their RMDs. Taking an RMD can push retirees into a higher income tax bracket. Since an RMD increases someone’s modified adjusted gross income (MAGI), they could be required to pay Medicare’s 3.8% surtax. That surtax is applied either to the lesser of net investment income or MAGI greater than $200,000 for individuals and $250,000 for joint filing. Additionally, an RMD can cause Social Security benefits to be taxed and it can increase your Medicare Part B and Part D premiums.

Once IRA account owners learn of these potential tax liabilities, they become concerned about the implications for their taxes and income. Adding a new tax liability to the mix can have unexpected consequences for your retirement and financial planning. 

Fortunately, there is an opportunity for IRA account owners aged 70.5 and older to consider. That is a Qualified Charitable Deduction or QCD. This is an effective way to reduce the tax burden while contributing to a cause that you care about. With a QDC, a check is sent directly from your IRA to a charitable organization. Doing this allows that donation to be deducted from your taxable income. 

However, as with any investment tax strategy, it’s essential to understand the rules and limitations of a QCD. Besides the 70.5 year age requirement, a QDC has a $100,000 annual limit per account owner. If you made a tax-deductible IRA contribution in the same year, it reduces your deduction for a QDC. The IRS has specific ordering rules regarding a QDC. Pay extra close attention if you only want to donate your RMD to charity as the IRS will satisfy the RMD first with any withdrawals you make, especially if you are taking monthly IRA distributions.

Finally, most IRAs qualify for QCDs including traditional IRA, inherited IRA, rollover IRA, as well as inactive SEP and SIMPLE IRAs. You may be allowed to make a QCD from a Roth IRA, but those distributions are tax-free so you may not see any additional tax benefit. 

Directing your RMD to a qualified public charity can be an effective tax strategy in retirement that contributes to a cause you care about. As with any major investment decision, it’s important to consult your financial advisor who can help you achieve the maximum tax benefits from your IRA. 

If you need the insight of a financial advisor, consider working with a Hazard & Siegel Independent Financial Professional. An Independent advisor will make the best decisions for you because they are not affiliated with an investment company, mutual fund, or specific investment product. Hazard & Siegel Independent Financial Professionals are part of a network of registered investment advisors, insurance professionals, and investment brokers. Our independent financial professionals are available to advise you on planning for your future including paying for college, wealth management, retirement planning, paying for long-term care, estate planning, insurance needs, and wealth transfer.

Hazard & Siegel offer clients the flexibility and choice of both fee-based and commission-based platforms, dependent upon what works best for your plan, and what you are most comfortable with. Both approaches have their advantages, but ultimately you as the client get to decide which fee structure or combination of fee structures work best for you.

Talk to Hazard & Siegel when you need a comprehensive lifetime financial solution.

Contact us today at 315-414-0722, or visit our personal investing page.