CPA Advantage #6 | Qualified Charitable Distributions (QCDs)
Published on by Andy Bertke, Ryan Lauer, in Video, Tax Services, Wealth Management
Can’t watch the video? Get the transcript.
If you’re charitably inclined, giving can be about more than supporting the organizations and causes that matter to you. With the right strategy, it can also be an important part of your overall tax and financial plan.
Once you hit age 70½, a qualified charitable distribution (QCD) can provide a tax-efficient way to give directly from an IRA.
Hitting the highlights
- QCDs allow eligible IRA owners to give directly to charity.
- The distribution generally isn’t included in taxable income.
- QCDs can be particularly valuable for those who don’t itemize deductions.
- Keeping the distribution out of adjusted gross income can provide additional tax benefits.
How does a QCD work?
A QCD allows an eligible individual to direct funds from an IRA straight to a qualifying charitable organization. Because the money goes directly from the IRA to the charity, the distribution generally isn’t included in the donor’s taxable income.
Say you want to donate $10,000 to a favorite charity. Rather than withdrawing $10,000 from an IRA, recognizing that amount as taxable income, and then writing a check to the charity, as an eligible donor, you may be able to transfer the money directly from the IRA through a QCD.
It sounds like a small difference, but it can have a big impact.
Why QCDs can be especially valuable
You might assume that making a charitable contribution automatically results in a charitable tax deduction, but that’s not necessarily the case. Charitable contributions generally provide a federal income tax deduction only if you itemize deductions.
If you don’t itemize, withdrawing money from an IRA and then donating it could increase taxable income without generating a corresponding charitable deduction.
A QCD takes a different route. Because an eligible distribution generally isn’t included in taxable income, it can provide a tax benefit whether you itemize or not.
The potential benefits go beyond the donation
Keeping a charitable distribution out of your adjusted gross income (AGI) may also matter because AGI affects other elements of your tax situation. Depending on the circumstances, reducing AGI may improve the tax treatment of other income, deductions, or benefits.
So if you’re an eligible taxpayer who already plans to give to charity, a QCD could be an especially useful financial planning tool.
Make charitable giving part of the bigger picture
QCDs aren’t the right strategy for every charitable gift, and specific requirements apply. But for individuals age 70½ and older who have IRA assets and charitable goals, they’re worth considering as part of a broader tax, retirement, and wealth management strategy.
Talk to us
Have questions about whether QCDs could be the right move for you, or about eligibility? Contact us for a free consultation with one of our tax and wealth management pros. They can help you determine how charitable giving fits into your overall financial plan and identify strategies that let you make the greatest impact while managing the tax implications.
Related content
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