Qualified Charitable Distributions (QCDs) are a tax-favored way to make charitable gifts from your IRA while gaining tax benefits that might not otherwise be available. If you are making charitable gifts without using your IRA, your gift will probably receive no tax benefit unless you are itemizing your deductions. Most taxpayers are no longer itemizing, instead taking the larger standard deduction (plus the extra standard deduction for those age 65 or over or blind). Even if you do itemize deductions, the QCD still provides a better tax benefit.
IRA owners and IRA beneficiaries who are 70 ½ or older may transfer money directly from their IRA to a qualified charity and avoid any taxation on the distribution from their IRA. By doing this they avoid taxation on the distribution but do not receive a deduction for the gift. The SECURE Act raised the age to take RMDs to 72 years, but the QCD eligible age stayed at 70 1/2.
The maximum gift that can be made is $105,000 per person per year. In years in which RMDs are mandatory, many individuals find it attractive to gift part or all of the RMD requirement to their favorite charity, thereby avoiding tax on the RMD. QCDs have the effect of lowering your Adjusted Gross Income (AGI), so they have the added benefit of perhaps lowering additional taxes on Social Security, Medicare surcharges, and increased tax deductions, credits, or other benefits that can result from a lower AGI.
There are some specific rules for a gift to qualify as a QCD, so make sure that you consult your financial or tax advisor prior to making the gift.
The gifts may be made to multiple charities as long as, in total, they are less than $105,000 in a given year. If someone is making the maximum charitable deduction for those who itemize, the $105,000 is above and beyond those limits. Because of this, QCDs enable donors to make larger gifts than if they just gave cash or other assets.
Susan Clayton Moore, J.D., is a financial advisor and wealth manager of Moore Wealth Management, Inc., with offices Montgomery and Alexander City, AL. Susan has under advisement over $150 million (as of 9.1.24) in brokerage and advisory assets through Kestra Financial and has been a financial planner for over 40 years. Contact Susan at 334.270.1672. Email contact is susan@moorewealthmanagement.com.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney or tax advisor regarding your individual situation. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS or Kestra AS are not affiliated with Moore Wealth Management, Inc. https://bit.ly/KF-Disclosures.