If you're 70½ or older and own an IRA, you have a fantastic option to make a difference in your community while benefiting from significant tax savings. In 2024, you can transfer up to $105,000 directly from your IRA to a qualified charity through a Qualified Charitable Distribution (QCD). The great news is that this $105K limit applies per person, not per IRA, making it an incredibly useful tool for those looking to donate substantial amounts.

 

Let’s dive into the main perks and some important considerations if you're thinking of utilizing a QCD.

 

The Three Big Benefits of QCDs

1. No Taxes on the Distribution: The money transferred directly from your IRA to the charity is not taxed. That means you’re effectively making a charitable contribution without having to worry about an extra tax bill at the end of the year.
2. It Doesn’t Increase Your AGI: Because QCDs aren’t added to your Adjusted Gross Income (AGI), this can help in several ways, especially if you’re trying to avoid Medicare premium surcharges. Typically, higher AGI levels can trigger higher monthly Medicare premiums, so by keeping your AGI lower, you might avoid those extra costs. Plus, it’s a great way to get tax savings on charitable donations, especially if you don't itemize deductions.
3. Counts Toward Your RMDs: Once you reach age 73, you're required to take Required Minimum Distributions (RMDs) from your IRA every year. The good news? QCDs count toward your RMDs. So, instead of taking an RMD and having to pay taxes on it, you can satisfy your RMD by donating that amount to charity—avoiding taxes and supporting a cause you care about.

Key Things to Keep in Mind:

• Direct Transfers Only: For the distribution to qualify as a QCD, the money must go directly from your IRA to the charity. If you take the money out yourself and then donate it, it won’t count as a QCD and will be taxable.
• Get a Receipt: Always ask the charity for a receipt of your donation. You’ll need this documentation to ensure the IRS recognizes the distribution as a QCD.
• Qualified Charities Only: Generally, the donation must go to a 501(c)(3) organization. Certain types of organizations, like donor-advised funds or private foundations, usually don’t qualify, so double-check before making the transfer.
• Age Matters: You must be at least 70½ at the time of the QCD. If you're younger than that, it doesn’t count, even if you turn 70½ later in the year.
• Available Regardless of Itemizing: One of the biggest perks of using a QCD is that it's available whether or not you itemize deductions on your tax return. So, even if you take the standard deduction, you can still benefit from using a QCD for charitable giving. This is unlike regular charitable contributions, where you only receive a tax benefit if you itemize on Schedule A.
• Joint Filers Benefit: If you file your taxes jointly, your spouse can also make a QCD from their own IRA, up to the same $105,000 limit. This effectively doubles the potential charitable giving you can make as a couple through QCDs.
• Special Rule for Post-70½ Contributions: If you made any deductible IRA contributions after turning 70½, there’s a complex rule that could limit how much you can count as a QCD. Be sure to consult with a tax professional or check out the specific details (like in your tax professional's newsletter) to see how this might apply to you.

By leveraging the benefits of a QCD, you can achieve a triple win: supporting a charity, reducing your tax burden, and lowering your Medicare premiums! It’s worth exploring if you’re in a position to give, especially if you’re already dealing with RMDs.