QUALIFIED CHARITABLE DISTRIBUTIONS (QCD)
I know it’s the start of a new year,
but I wanted to talk about required minimum distributions from retirement
plans. For those of us fortunate to have retirement funds set aside, there are
rules on how and when to take those funds out. Required minimum distributions
are the amounts that are required to be withdrawn by every person every year starting
with the year they turn 72.
The amount is calculated on worksheets,
based on the age of the person, and the amounts in their retirement accounts.
These required minimum distributions are mandatory. These withdrawals are often
taxable and can affect the amount of Social Security that is taxable, as well
as reduce the amount of medical expenses and other itemized deductions that
might be allowed.
For some people who don’t need the
funds, they’re required to withdraw it anyway. Some of them set it aside, but
still have to pay taxes on it now.
A Qualified Charitable Distribution
(QCD) might be worth considering. This allows someone to have a required
minimum distribution (retirement distribution) sent directly from the
retirement account to a charity, like your church.
There are
potential benefits from giving a Qualified Charitable Deduction directly to the
church.
If someone
has Social Security income or something else that becomes taxable on their tax
return because of other income, with a QCD, it doesn’t appear on the tax
return, so gross income is reduced and the taxability of Social Security would
likewise be reduced.
In other words, if someone gives a QCD directly, it isn’t
taxable income. If a taxpayer receives the total distribution, they pay taxes
on that total amount of the and then give the contribution themselves. Since
most people aren’t able to itemize, there is no tax benefit to the charitable
contribution. Making
a QCD is a smart way for individuals who don’t itemize deductions to still
receive tax benefits from their charitable donations.
If someone has significant medical expenses that could allow some
deductibility as itemized deductions, the adjusted gross income that calculates
the base for deductible is reduced with a QCD, so more medical expenses would
potentially be deductible.
Ultimately, if someone receives the retirement benefit
directly and gives it to the charity themselves, the person is giving less than
100% because the retirement benefit is taxable.
QCDs are a smart option for retirees who don’t need the
additional money from their IRA — they can respect the RMD mandate without
having that distribution included in their yearly income.
The tax savings they offer
let you maximize your charitable impact.
Please note that because the retirement distribution isn’t
taxable, the charitable contribution isn’t deductible either.
___
Please feel free to contact me at (315)
427-3668 or susanranous@unyumc.org
if you have any questions about a QCD.
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