Using a QCD Can Ghost Your RMD

Written by Clark Allison | Mar 16, 2024 12:20:05 AM

If you already give to charities and you take required minimum distributions (RMD) from your IRA, making a Qualified Charitable Distribution (QCD) to your charity may be a good option. A QCD, also known as an IRA charitable rollover, allows you to donate to a charity instead of taking your RMD.

The QCD concept is very straight forward. Instead of taking a distribution from your IRA to satisfy your RMD obligation, you have your financial advisor distribute the RMD amount from your IRA directly to your charity.

If your RMD is about the same amount as the amount you will give to charity, then making a QCD saves you a step and will reduce your adjusted gross income, which could result in tax savings.

The max amount for a QCD is $100,000 per year, indexed for inflation. The max amount in 2024 is $105,000.

Here are three reasons why using a QCD might be to your advantage.

1) QCD can satisfy your RMD and your charitable intentions in one fell swoop.

2) When you take your RMD, you must report it as ordinary income on your tax return and include it in your adjusted gross income. However, the QCD is not included in your adjusted gross income. By using a QCD, you will satisfy your RMD obligation without adding the RMD amount to your taxable income. This could lower your tax bracket or keep you from being in a higher tax bracket.

3) If you don't itemize your deductions and instead take the standard deduction, you do not get a tax deduction for your charitable gifts. However, you can use a QCD even if you take the standard deduction.

Using a QCD essentially ghosts your RMD on your tax return.

A QCD is not for everyone, but it is a great option if you are making required minimum distributions from your IRA and you make charitable gifts.

BONUS - TAX AND GIVING STRATEGY

If you max out your IRA every year for the tax deduction, your accountant may tell you that when you are 73 and have to take the RMD, you will get whacked in taxes. But what if you use your IRA to make charitable gifts with a QCD? Isn't that like having your cake and eating it too? You get the tax deduction for funding your IRA. And when you have to take your RMD, you don't pay taxes on it because you give it to charity. And you were going to give that much to charity anyway. And your IRA keeps growing tax free.

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