Qualified Charitable Distributions

This week, Craig Siminski, of CMS Retirement Income Planning, helps us discover how qualified charitable distributions work and why they may now be more valuable than taking a tax deduction:

The Tax Cuts and Jobs Act roughly doubled the standard deduction and indexed it for inflation through 2025. (The standard deduction is $12,200 for single filers and $24,400 for married taxpayers filing jointly in 2019; in 2020 it rises to $12,400 and $24,800, respectively.)

As a result, far fewer taxpayers will itemize deductions on their tax returns, and some people may be disappointed that they no longer benefit from writing off their charitable donations.

If you are 70½ or older, you can use a qualified charitable distribution (QCD) to donate from your IRA and get a tax break, whether you itemize or not.

Not coincidentally, this is the same age you must begin taking annual required minimum distributions (RMDs), which are normally taxed as ordinary income, or face a 50% penalty on the amount that should have been withdrawn.

QCDs satisfy all or part of any RMDs that you would otherwise have to take from your IRA. Better yet, QCDs are excluded from your income, so they help lower your adjusted gross income (AGI) as well.

How QCDs Work

The IRA custodian must issue a check made out to a qualified public charity (not a private foundation, donor-advised fund, or supporting organization). In some cases, the IRA custodian may provide a checkbook with which you can write checks to chosen charities. Be aware that any check you write will count as a QCD for the year in which …

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

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