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Most Popular Strategies from New Tax Code: Qualified Charitable Distributions (QCD’s) Part 2

| December 18, 2019

Most Popular Strategies from New Tax Code: Qualified Charitable Distributions (QCD’s)

Part 2 of 3

In part 1 of this 3-part series we spoke about how great Roth Conversions are under the new tax code and why now is a fantastic time to start that planning. Today we are going to look at another enviable planning option under the new tax code and understand why Qualified Charitable Distributions (QCD’s) are so popular now.

As mentioned from our prior post, the new tax code has increased the standard deduction amount for tax filers. Currently in 2019, if you are over the age of 65 and married your STANDARD tax deduction will be $27,000! So, unless your itemized deductions are more then that, everyone will get that deduction. Hold on to that thought for a moment…

So, Let’s Back up a Minute…What Exactly is a QCD?

A QCD is a distribution from a pre-tax retirement account (Traditional IRA) to a Qualified Charity. By having the distribution go directly from the IRA to the charity there are no taxes paid on the distributionand your favorite charity gets to benefit! The QCD allows you to give your annual Required Minimum Distribution from your IRA tax free, to your charity of choice, once you turn 70 ½.

Why is it Popular Now?

Making tax deductible charitable contributions has always been a popular thing on many fronts. You get to give money to your favorite charity, and you get to write off that amount against your income to save on taxes. However, with the STANDARD deduction so high, most clients are not getting the tax deduction for their charitable contribution, they are just getting the STANDARD deduction as noted above.

But if you send the distribution directly form your IRA account to your charity, the distribution never shows up on your taxes. It goes directly to the charity, essentially providing the tax deduction that you used to get.

Don’t get caught in the trap of thinking you can just take the distribution for yourself and turn around and donate it to the charity and think it’s the same thing because it is not. If you take the distribution it will show up as taxable income, and you will not get to write off this donation as a tax deduction if you are getting the STANDARD deduction anyways. This method of thinking would be increasing your tax bill!

Is This Right for You?

  • You must be 70 ½ years old.
  • The QCD must go to a qualified 501(c)(3) organization.
  • Must complete before December 31st of each year.
  • Maximum $100,000 each year for each person.
  • You should receive the same acknowledgement from the organization as you would for a normal charitable gift.
  • No withholding, no itemization needed!

The QCD can be a very appealing opportunity for those individuals who do not rely completely on their Requirement Minimum Distributions to fund their retirement needs and are interested in making a charitable donation. You are able to help fund the charitable causes closest to you, while still receiving the tax benefits along the way that you were used to before the new tax code.