Qualified Charitable Contributions
We wanted to bring up a tax savings technique that you may not be aware of. IRA owners can elect to gift some of their required minimum distribution to a charity of their choice and avoid recognizing the income on the withdrawal. A win-win. The charity gets the donation, you satisfy the IRA distribution requirement and you don’t have to any tax on the amount of the gift. This technique is called a qualified charitable distribution or QCD. This strategy used to be a year-to-year allowance by Congress, but is now a permanent feature.
Your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. For example, if your required minimum distribution was $20,000, and you made a $10,000 qualified charitable distribution, you would need to withdraw another $10,000 during the year to satisfy your requirement.
When filing your tax return, you report the total IRA distribution amount listed on tax form 1099-R on line 4a of your return. Note that the amount of the qualified charitable distribution will not be listed on the 1099-R. You must track the amount of charitable distributions you make during the year and record only the non-charitable amount on the line for the taxable amount, 4b (enter zero if the full RMD amount was a qualified charitable distribution). Enter "QCD" next to this line.
While only IRA owners who have started their RMD (age 72+) can take advantage of this strategy, we wanted to inform those approaching RMDs or who may have family members that could use qualified charitable distributions to accomplish their charitable goals.
Have a great Easter weekend,
Bob Stowe, CFP®
Roddy Warren, CFP®
Stowe Financial Planning, LLC