04 Feb Can I save taxes by giving my IRA distribution to charity?

Q. Does a Qualified Charitable Distribution (QCD) replace the need for an Required Minimum Distribution (RMD)?
— Giver

A. There have been a lot of questions about IRA distributions since the passage of the SECURE Act, which made big changes for investors.

First let’s go over how a Qualified Charitable Distribution (QCD) works.

A QCD allows an individual who is 70 1/2 years or older to donate up to a maximum of $100,000 annually directly from their IRA to an eligible 501(c)(3) charity, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

He said QCDs made are excluded from ordinary taxable income of the taxpayer.

“In addition, to the income exclusion, it also counts toward an individual’s RMD for the year,” Maye said. “So as long as the QCD amount is equal to or greater
than the RMD amount, the person’s RMD for that year will be satisfied.”

If the QCD made is less than the RMD, the difference still has to be reported
as taxable income, he said.

Maye offered this example: If a person’s RMD was $10,000 and they did a $5,000 QCD, they would need to still distribute or take $5,000 more from the IRA to satisfy their RMD. The $5,000 would be reported as taxable for that year.

Also note the SECURE Act pushed RMDs out to age 72, and still allows a QCD to be made by individuals over the 70 ½, he said.

“Even if a person has no RMD because of the new age, it can still make sense to do a QCD to lower a person’s taxable income, which could potentially lower the taxability of their Social Security payments as well as Medicare premiums,” he said.

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This story was originally published on Feb. 3, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.