New Year of Support with a QCD
Time to think about a new year of supporting IMCC with a Qualified Charitable Distribution (QCD)!
Now that the 2022 is upon us, it’s worth reminding our present and future benefactors about how Qualified Charitable Distributions (QCDs) work and why January is the right time to make your plans! Congress has left the QCD planning alone this year and for charitable donors looking to save on taxes, it’s time for a quick review.
On January 1, custodians of IRAs and other retirement plans are required to calculate the Required Minimum Distributions (RMDs) for account holders over age 72. This calculation gives owners of retirement plans the exact amount that they must take without paying a penalty before the end of the year. Remember, all distributions out of your IRAs or retirement accounts are taxable as Unearned Income according to your tax bracket.
Many donors consider the use of QCDs out of their IRAs to avoid taxes on these Required Minimum Distributions. Donors can give up to $100,000 out of their IRAs and avoid income taxes on that amount, and often look to their RMD amounts as a first consideration. However, keep in mind a few rules:
- QCDs must go directly to charitable organizations.
- You can gift up to $100,000 in a QCD even if that amount is higher than your Required Minimum Distribution.
- Keep records of your charitable distributions and provide to your tax preparer: Your 1099 R will not show the QCD amount is non-taxable.
- And critically: if you want the QCD to count against your RMD, remember that the first dollars distributed from the IRA will always be considered part of your RMD. So be careful not to take some or all of your RMD and THEN decide to use the QCD.
Thomas C. West, CLU® , ChFC® , AIF® , is a Senior Partner in SEIA’s Virginia office. Tom has a robust wealth management practice that emphasizes cash flow in all stages of retirement with an emphasis on planning and asset management for families facing the challenge of health-related dependency due to disability, illness, or death. Tom also has significant experience in issues related to suitable and ethical financial strategies pertaining to incapacitated seniors.
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