A Tax-Efficient Way to Donate

Becky Blevins, CFP®, CPWA®, MSFS June 5th, 2023

If you’re taking Required Minimum Distributions (RMDs) from your IRA, I’ve got some info that could be helpful.

Basically, there’s a way to donate to charity and reduce your taxable income at the same time. They’re called Qualified Charitable Distributions (QCDs), and they let you direct your charitable contributions straight from your IRA to a 501(c)(3) charity. What’s great about this strategy is the amount you donate isn’t taxable to you!

So, let’s say your RMD is $30,000, but you donate $5,000 of that directly from your IRA to a 501(c)(3) charity. You’d only have to pay tax on $25,000 instead of the full $30k. This is better than just a deduction or a credit because it reduces both your taxable income and your adjusted gross income.

One thing to watch out for though: the 1099-R form you get probably won’t show the QCD, so make sure to tell your tax preparer how much you donated.

As a heads up, QCDs can only be made from IRAs, not Inherited IRAs or any other retirement plan. Also, the IRS limit on QCDs is $100,000 per year per taxpayer. And you need to be over 70 ½ years old to make a QCD, but one smart move is to wait until after RMD age to do it.

Of course, it’s always a good idea to talk to your financial advisor and tax advisor before making any decisions.

Read More By Becky Blevins, CFP®, CPWA®, MSFS

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investment advisory services are offered through Concord Wealth Partners, an SEC Registered Investment Advisor.

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