Disclaimer: This guide is for informational purposes only. Always consult your tax, legal, or accounting advisors before engaging in any transaction.
Have CICOA’s services positively impacted your life or the lives of family members? If you are retired, you may want to consider giving back to CICOA and satisfying your IRA required minimum distribution at the same time.
If you are 70.5 years of age or older, you are required to make annual and taxable withdrawals from your IRA. The amount that you are required to withdraw is called your required minimum distribution (RMD). If you are fortunate enough to not need your entire yearly RMD amount for living expenses, you may be interested in donating all of part of your required minimum distribution as a qualifying charitable distribution (QCD). These donations are tax-free and could save you thousands of dollars on your income tax bill, depending on your tax rate.
What is a QCD?
In short, a QCD is a tax-free donation to an eligible charity that can satisfy your required minimum distribution.
QCDs versus Itemized Charitable Deductions
You may be accustomed to itemizing your charitable contributions in order to get a tax deduction. However, new tax laws introduced in 2018 increased standard deductions for state and local taxes and capped itemized deductions at $10,000. As a result, itemizing has become less beneficial for some.
For example, standard deductions have increased to $18,000 for heads of household and $24,000 for married couples filing jointly. With lower deductions for state and local taxes, standard deductions now allow for a higher overall deduction for some, rather than itemizing.
If you decide to take a standard deduction, how can you get a charitable deduction? Well, if you are 70.5 years or older, you can still experience financial benefits by making a tax-free charitable donation that satisfies your required minimum distribution.
The requirements for making a QCD tax-free:
- You must be at least 70.5 years or older to make tax-free charitable donations that satisfy your required minimum distribution.
- The maximum tax-free charitable donation is $100,000 per year.
- Tax-free QCDs must be made directly from your IRA only to an eligible charity. You cannot withdraw your distribution and then donate it later, or it will be taxable.
- QCDs can be made directly from IRAs only, not from 401(k)s or other retirement accounts. You may have to roll over funds from your 401(k) to an IRA in order to do this.
- You cannot claim charitable contribution tax deductions on QCDs because they already are tax-free.
- The charity that you give to must be a 501(c)(3) organization.
Can you donate just part of your RMD to charity?
Donating all of your RMD to charity would mean that you do not have to withdraw any more from your IRA for taxes for the year. However, it also is acceptable to donate only part of your required amount, and withdraw the rest for your own use. The withdrawn amount will be taxed. Just remember to withdraw your entire RMD before the end of the year to avoid a penalty.
To get started, consult your IRA trustee about transferring your donation directly from your IRA to CICOA. Or, contact the CICOA Foundation at firstname.lastname@example.org at (317) 803-6062.