A qualified charitable distribution (QCD) is a distribution from your IRA account that you are eligible for beginning at age 70 ½. But because it goes directly to the charity of your choice, it doesn’t count as taxable income to you. It can keep your income at a lower level and help you avoid taxes on social security and premium surcharges on Medicare. In addition, the IRS will allow the QCD to count as a required minimum distribution (RMD) from your account.
There are rules to follow and limits to be aware of but being thoughtful about including qualified charitable distributions in your financial plan can help you achieve multiple goals.
Beginning at age 73, the IRS rule on required minimum distributions (RMDs) kicks in for tax-deferred savings accounts. RMDs are calculated using a formula that combines the value of the account at year end of the prior year and the age of the taxpayer. From the IRS’s standpoint, the goal of RMDs is to ensure that the taxes are eventually paid on retirement savings that have been contributed pre-tax.
RMDs can be substantial, depending on the size of your account. This can create problems for taxpayers who want to keep income below certain levels, whether to stay in a lower tax bracket or to avoid additional taxes or surcharges on benefits.
Charities eligible to receive tax-deductible contributions under rule 501(c) (3) qualify. Private foundations and donor-advised funds do not qualify for QCDs.
Charitable giving is a wonderful way to see your vision come alive in the world and to support causes and people you care about. Thinking about the gift in the context of your financial plan can provide ongoing benefits – and ultimately, careful structure and minimizing taxes can help you maximize the amounts you have available to give.
Collabria Capital, Inc. is a San Francisco-Bay Area fee-only fiduciary financial planner& investment manager providing wealth management services to clients locally and virtually throughout the US.
Paul Saad, Co-Founder at Collabria Capital, Inc, is a CERTIFIEDFINANCIAL PLANNER™ (CFP®) focusing on comprehensive financial planning, personalized investment management, and equity/variable compensation.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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