Can a Qualified Charitable Distribution Save You Money?
A recent article — “What’s a QCD? (And Why It’s Timely)” — in The Wall Street Journal suggests that older adults who are withdrawing money from their IRA and who want to make charitable donations, consider a “qualified charitable distribution.”
A qualified charitable distribution (QCD) is a withdrawal from an individual retirement account (IRA) that is sent directly to a charity. “In other words,” says the Journal, “the funds don’t pass through your hands. You instruct your IRA custodian to send the money straight to the [charitable] group or groups you specify.”
AN EXAMPLE OF THE SAVINGS
How might this save you money? Distributions from an IRA are reported as income on your tax return. If you are 70½ years or older, you are required to withdraw a minimum amount each year (there’s a formula). It’s called a required minimum distribution.
So, let’s say you might be required to withdraw $6,000 this year. Normally, all of the $6,000 would be considered taxable income.
However, if you designate one or more charities to receive, say $1,000 of that amount, you can thereby reduce your IRA taxable income to $5,000. Consequently, your tax liability ends up being lower, saving you money on your income taxes.
Why Is a Qualified Charitable Distribution Important this Year?
Why is the QCD important this year? Because the tax law for 2018 changed last year. Under the new tax law there is a larger standard deduction thus reducing the need for some individuals and couples to itemize their deductions because the larger standard deduction would be greater than their itemized deductions.
However, with a qualified charitable distribution from your IRA, again if you are 70½ years or older, you have the ability to exclude some income – in the form of a donation – on your tax return. Thus, you receive the tax benefit of making a charitable donation.
Consult Your Tax Advisor First
Circumstances vary for each individual and family, so consult your tax advisor first before taking any action. But, it’s worth asking if a qualified charitable distribution could save you money.
All action must be taken before the end of 2018 to qualify for your 2018 tax return.
Meher Mount is a 501(c)3 qualified charity as required for a qualified charitable distribution. The federal EIN number is 77-0236525.
Glenn Ruffenach, “What’s a QCD? (And Why It’s Timely),” The Wall Street Journal, September 24, 2018. ©The Dow Jones & Company, Inc.