Your required IRA distributions can benefit a worthy cause – while you benefit from a reduced tax liability.
Helping others when you’re gone is a noble and rewarding aspiration. But think how much more rewarding it could be, both personally and charitably, to help others while you’re still here.
Giving during your lifetime can take many forms, one of which is using qualified charitable distributions (QCDs). It’s an option that can also reduce your tax liability, as it involves donating pre-tax dollars before they become taxable income as a required minimum distribution (RMD).
Here’s how it works.
Doing good is often reward enough, but charity and tax deductions seemingly go hand in hand. As the standard deduction has risen to $12,550 for individuals in 2021 (double for married filing jointly), you may want to consider giving strategies that could help reduce your tax liability in other ways.
If you are age 72 or older and own an IRA, you are required to take minimum distributions whether or not you need the money. Generally, these distributions are treated as taxable income. The Protecting Americans from Tax Hikes (PATH) Act of 2015 allows an IRA owner – who’s subject to RMDs – to make a QCD up to $100,000 directly from their IRA to a charity without getting taxed on the distribution. Basically, you can satisfy your RMD amount without reporting additional income.
There is, however, another important benefit: When the RMD payment is applied to the QCD, that amount is also excluded from tax formulas that could impact multiple categories such as Social Security taxation, Medicare Part B and D premiums, and the Medicare tax on investment income.
You must be eligible. You must be age 70 1/2 or older at the time of the required distribution. SEPs and SIMPLE IRAs are generally excluded.
There is an annual limit. Your RMD taken as a QCD cannot exceed $100,000 per tax year (even if your RMD is greater than $100,000).
Only qualified organizations count. The IRA trustee or custodian must make the distribution directly to a qualifying charity (private foundations and donor advised funds are not eligible). For instance, you cannot take the distribution yourself then write a check to the charity.
By donating the RMD to a qualified charity, you can enjoy the satisfaction of knowing you are helping a worthy cause while simultaneously reducing your taxable income. This strategy also helps you live out your values in real time, effectively living your legacy in the here and now.
To learn more, seek guidance from your financial and tax advisors. They’re a good source of information when it comes to living and giving generously.
Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.
Saling Wealth Advisors is an SEC registered investment adviser located in Louisville, Kentucky. Saling Wealth Advisors may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Saling Wealth Advisors’ web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of Saling Wealth Advisors’ web site on the Internet should not be construed by any consumer and/or prospective client as Saling Wealth Advisors’ solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by Saling Wealth Advisors with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Saling Wealth Advisors, please contact the state securities regulators for those states in which Saling Wealth Advisors maintains a registration filing. A copy of Saling Wealth Advisors’ current written disclosure statement discussing Saling Wealth Advisors’ business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Saling Wealth Advisors upon written request. Saling Wealth Advisors does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Saling Wealth Advisors’ web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
This website and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.