Lower Your Taxes In Retirement With A Qualified Charitable Distribution, #186
As you enter retirement, tax planning is something that must be prioritized. A Qualified Charitable Distribution (QCD) can be a great tool in your arsenal to help you minimize the taxes you have to pay. So what is a Qualified Charitable Distribution (QCD)? How can it actually help you lower your taxes? In this episode, I’m going to cover what a QCD is, how you make one, and how it can help lower your taxes. I’ll also share a few examples of what a QCD might look like.
You will want to hear this episode if you are interested in...
What is a Qualified Charitable Distribution? [1:34]
How do you make a Qualified Charitable Distribution? [5:07]
How to note a QCD on your tax return [8:02]
How we process Qualified Charitable Distributions [9:19]
How can this help you lower your taxes? [10:48]
What is a Qualified Charitable Distribution?
Let’s back up for a minute and talk about what a Required Minimum Distribution (RMD) is. When you turn 73 years old, the IRS requires you to distribute a portion of your retirement accounts and pay taxes on the money. That’s an RMD.
The Tax Cuts and Jobs Act in 2017 made a big change to standard deductions. It allowed many people to pay less in taxes—but it limited the amount of charitable donations you could deduct on your taxes. Because of this, charities saw a large decline in the amount of donations they received.
One way to increase charitable giving in a tax-friendly way is a Qualified Charitable Distribution. A QCD allows you to donate a portion of your RMD o a charity and not pay tax on the amount you donate.
For the last few years, you could donate up to $100,000 from your IRA and not have to pay taxes on it. Thanks to the SECURE Act 2.0, starting in 2024, the annual QCD limit has increased to $105,000 per year per individual.
How do you make a Qualified Charitable Distribution?
When you’ve given to charities, you’ve likely given them cash or a check. You let your accountant know what you gave and they note it on your taxes. When you make a QCD, you need to contact your IRA custodian and they send money directly from your IRA directly to the charity of your choosing. I cannot emphasize enough: You cannot take receipt of the money first or it will be a taxable distribution.
Each custodian has a different process, but generally, you complete a form with the charity’s information (you’ll need the charity’s address and Tax ID number) and submit it. Secondly, most 501C3 charities can accept a QCD but you’ll want to confirm with them first.
People often improperly report a QCD on their taxes and end up paying taxes on them when they shouldn’t have to. Listen to learn how you can avoid making mistakes on your taxes.
How can a QCD help you lower your taxes?
If your income is over a certain threshold, you’ll have to pay an additional amount of money on your Medicare Part B premiums. In 2024—for a married couple filing jointly—if your income goes over $258,000, you’ll have to pay double for your premium.
The standard premium per person is $174.70. You’d have to pay $349.90 per month per person. This IRMA charge kicks in if you’re just $1 over the limit. But if you make a QCD to a charity to keep you from going over the limit, it can save you premium costs.
I share some other need-to-know details—and get into the nitty-gritty details of how to note a QCD when you file your tax return—in this episode. Listen to learn more!
Resources Mentioned
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