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 Required minimum distributions are the amounts that are required to be withdrawn by every person every year starting with the year they turn 72.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.

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Please feel free to contact me at (315) 427-3668 or susanranous@unyumc.org if you have any questions about a QCD.