Talking QCDs in the Giving Season


Many Americans choose to make charitable donations with their retirement funds. For some it’s a way to give back to the community, while others use it as a way to support causes that are important to them. Whatever the reason for donating–if you choose to do so–you should understand the ramifications of that decision as well as the most efficient way to make a donation. It’s been a while since I’ve written about it, but qualified charitable distributions (QCDs) are probably the most efficient and effective way to make a charitable donation from your retirement funds. In case you forgot what a QCD is, it’s a charitable donation of up to $100,000 to a qualified 501(c)(3) charity made from an IRA. A QCD can offset any RMDs that need to be made for that year, but can only be made if you are 70 1/2 years old. QCDs offer a similar tax outcome to itemizing your charitable giving, if that matters to you. And yes, QCDs are allowed this year even though RMDs are suspended. Which leads me to my next part of charitable giving–the tax implications. While I cannot offer tax advice, I can advise you to speak with a tax professional if you are making substantial charitable donations in the hopes of taking advantage of tax incentives for doing so. That goes for whether you are over 70 1/2 and are making a QCD or are not yet retired, but want to make a substantial donation to your favorite charity. A tax professional should be able to give you a good idea as to how a donation may impact your taxes and whether it’s overall a good idea. However, if you want to know how a QCD or other charitable giving might affect your nest egg or financial plans, you will want to also speak with a certified financial planner or wealth manager.

Time is Running Out For 2018 QCDs

If you are considering making a qualified charitable donation (QCD) this year, you have just a over a month to do so as the deadline in December 31, 2018. A QCD presents a valuable tax break opportunity that can be too good to pass up, especially if you find that you will now be taking the standard deduction as a result of last year’s tax reforms. A QCD will allow you a tax break for your 2018 charitable contributions that you may not have had a chance at because you are unable to itemize anymore. a QCD can also be a great way to make a donation to your favorite charity and feel good about where you are putting your money. While QCDs are great, you do need to be aware of any limitations they may have. Remember, such distributions should be done as a direct transfer from your IRA or you can have the IRA custodian send you a check made out to your charity of choice that you then send to the charity. Also, you cannot receive anything in return for your donation from the charity. Finally, and this is important if you have a Roth IRA, QCDs only apply to taxable money in your IRA. Since Roth IRA money is taxed when it goes into the account, so it is post-tax. This means that little of the money in there is taxable, which is why QCDs from Roth IRAs is rare and why people usually do them from traditional IRAs. There are other details and limitations to QCDs that can make them a bit tricky, so your best bet is to talk with a certified financial planner prior to taking one so that you don’t run afoul of any issues.

QCDs Are Good, But Do You Know the Limits?

Donating to a charity can be a satisfying experience. As such, it’s not uncommon for people to make substantial donations to charities and organizations in their later years or as part of their will. If you are interested in such a move or are interested in ways to potentially spend excess retirement savings, then you’ve probably heard of a qualified charitable distribution (QCD). In case you are unaware, a QCD is a direct transfer of funds from your IRA to a qualified charity, a transaction conducted by your IRA custodian. It is used by many retirees as a way to donate and help charities that serve causes and interests that they are passionate about. If you are interested in a QCD, you may will need to know that you cannot conduct one until you are 70 ½ or older and that the annual limit to a QCD is $100,000 per person per year. A QCD can be for any amount below that $100,000 threshold. Furthermore, QCDs can be counted towards your required minimum distribution (RMD), so long as they come out of your IRA by your RMD deadline and meet the aforementioned age and monetary value limitations. Donating to a charity can be a fulfilling experience and a QCD is an easy way to do so, however, the limits can be tricky to understand. If you are considering doing a QCD, you should speak with a certified financial planner to ensure that you do so properly and also that is doesn’t affect your retirement goals and plans.