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Tax Free!

That’s Right, QCDs are Tax Free!

Did you know that you can support charities like Connection Ministries directly from your IRA tax free? 

For individuals who are 70½ and charitably minded, the strategy outlined in this “Illuminate Blog” can offer valuable tax advantages. It’s called a Qualified Charitable Distribution or QCD. However, as with any financial or tax strategy, it’s best to understand the details and limitations and talk with your tax advisor.

A QCD is a tax-effective way to support your causes, especially if you don’t itemize your deductions. If you plan to take an IRA distribution, whether it is for a Required Minimum Distribution (RMD), or another reason, and you also plan to make charitable gifts, consider making the charitable gifts from your IRA through a QCD. Your charitable gifts through a QCD are tax free. In effect, you receive a value that is better than a tax deduction. 

Receiving a normal distribution from your IRA could increase your taxes in several ways whether it is for an RMD or not.

  1. Since normal IRA distributions are considered ordinary taxable income, it can push some retirees into a higher marginal tax bracket.
  2. IRA distributions also increase the taxpayer’s modified adjusted gross income, or MAGI, which could trigger the 3.8% Medicare surtax. Large distributions can also impact Medicare Part B and D premiums.
  3. Even modest IRA distributions can cause Social Security benefits to become taxable, up to 85%

You can use any portion of a planned IRA distribution as a QCD to make your charitable gifts, without increasing your ordinary taxable income.  

Here are a few details you should consider.

  • You must be at least 70½ years old at the time you request a QCD.
  • For a QCD to count towards your current year’s RMD, the funds must come out of your IRA by your RMD deadline, generally December 31.
  • Your IRA custodian must transfer the funds directly to the qualified charity. If a distribution check is made payable to you, the distribution would NOT qualify as a QCD and would be treated as taxable income.
  • The maximum annual total distribution amount that qualifies for QCDs in a calendar year is $100,000. If you’re married filing jointly, both you and your spouse can each contribute up to $100,000 in QCDs from your own IRAs.

QCDs are not considered taxable income and therefore people over age 70 ½, who intend to be charitable with 501(c)(3) organizations like Connection Ministries will find the QCD worth considering.