If You’re Old, Get a Double Benefit From Your Charitable Contributions!

If you’re over 70 ½, have an IRA, and give significantly to charitable organizations – pay attention!  I’m writing about the Qualified Charitable Distribution – QCD - a great tax benefit. 

Here are the specifics:  you can do a direct distribution from an IRA to a charity without it being a taxable event to you, and, when you’re a bit older, this charitable distribution will do double duty and also count toward your RMD or required minimum distribution. 

Here's the Savings

Here’s the savings:  instead of distributing funds to yourself from an IRA, which would be a taxable event, and then writing a check,  you route the money directly to the charity, with NO taxable event on the distribution.  If you’re accustomed to making significant charitable gifts, this is the way to do it.  

There's another consideration here though:  since you are not taxed on your QCD, you cannot deduct it as a charitable contribution when itemizing deductions on Schedule A.  If your charitable deduction amount is enough to make Schedule A a better choice for you than the standard deduction, that's about the only circumstance I can think of where you'd rather distribute and pay taxes before giving charitably.  The 2023 standard deduction Married filing Jointly is $27,700 plus an additional $3000 when over age 65.  That means your itemized deductions would have to exceed $30,700 to make skipping the QCD and doing a direct IRA distribution and then charitable gift made sense.  

Some specs to make this work:

• The funds must come from your IRA, not a qualified plan you have at your workplace.  If that’s where your money is, then do an IRA rollover in the amount of the charitable gift and you’re good to go.
• An IRA is an Individual Retirement Account – Individual being the operative word here.  If you have a spouse who is also age 70 ½, your spouse can also make a QCD. 
• Once you get to the age where RMDs are necessary, your Qualified Charitable Distribution can do double duty for you and also count as a Required Minimum Distribution.
• The maximum QCD is $100,000.  Beginning in 2024 this amount will be indexed for inflation.  

To make a QCD you need to contact your IRA custodian with instructions as to how much to send out and to whom.  If you’re looking to send $25/month to a charity then a QCD probably isn’t the way to do it.  But if you support your house of worship to the tune of, say, $6000/year, then you can do a simple $6000 QCD rather than giving $500/month. 

For a little lighter reading, check out my List of Top 10 Things to Waste Money On.  

Best to All, 

--Glenn J. Downing, MBA, CFP®

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