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Using your IRA for Charitable Giving

One impact of the rise in the 2017 stock market is that many retirees are finding their 2018 Required Minimum Distributions (RMDs) from their IRAs to be higher than previous years.  Coupled with the changes under the Tax Cuts and Jobs Act of 2017, retirees may want to find ways to reduce their 2019 tax bill.  Using your IRA for Charitable Giving is a great way to reduce taxes while supporting charitable organizations  – organizations like The St. Louis Area Diaper Bank!

Tax Changes

Under the Tax Cuts and Jobs Act of 2017, the Standard Deduction for single filers is $12,000 and for married filing joint is $24,000.  The State and Local Tax (commonly referred to as “SALT”) deduction is limited to $10,000 per return.  Many taxpayers will no longer itemize and will not benefit from the charitable deduction.   So how can you give and still get a tax benefit? You can give appreciated stock, which still avoids the capital gains tax, or, if you are over age 70½, you can give directly to a charity from their IRA, called a “Qualified Charitable Distribution.” 

What is a Qualified Charitable Distribution (QCD)? 

A Qualified Charitable Distribution (QCD) is an otherwise taxable distribution from your IRA (assuming you are over age 70½) that is paid directly from the IRA to a qualified charity – like the St. Louis Area Diaper Bank!  You are allowed to exclude such a gift from your income.  Note, you do not get a charitable deduction as the QCD has already been taken out of your income and this only applies to IRAs not your 403(b) or 401(k).  You can give up to $100,000 per year via a QCD.

Can a QCD satisfy my Required Minimum Distribution (RMD)?

Yes, a Qualified Charitable Distributions can satisfy all or part of your Required Minimum Distribution (RMD) from your IRA.  For example, assume your RMD is $50,000 for 2018.  You can give away $10,000 reducing the amount you must take, and pay tax on, to $40,000.  A QCD also reduces your Adjusted Gross Income (AGI) upon which many other tax items and Medicare payments are based (in this example only $40,000 would be added to your AGI instead of $50,000).

How do I report a QCD on my income tax return?

To report a QCD, you generally report the full amount of the charitable distribution along with your other RMDs and distributions on the first line for IRA distributions.  On the line for the taxable amount, you enter only the amount you received not the amount of the QCD.  Enter the term “QCD” next to this line.

These materials were prepared for informational purposes only based on sources deemed reliable and do not take into consideration your particular circumstances, financial or otherwise. You should consult with an appropriately credentialed professional before making any investment or financial decision.

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