After the passage of the Tax Cuts and Jobs Act, many people are asking us if there is still a way to save on their taxes? There is good news for those who are charitably inclined and are 70 ½ or older. It’s called the Qualified Charitable Distribution (QCD).
The IRS mandates an annual Required Minimum Distribution (RMD) be taken from an IRA for account owners aged 70 ½ and up. By making a QCD, an IRA owner can avoid paying taxes on the mandatory distribution, and the full amount will go to the charity of their choice.
- The charity benefits
byreceiving the higher, pre-taxed amount.
- The IRA owner benefits by having a lower reportable taxable income.
A taxpayer can donate through a QCD and still claim the standard deduction. Furthermore, because a QCD of up to $100,000 per IRA owner is allowed, a couple filing jointly can potentially claim QCDs totaling up to $200,000. Because this strategy reduces adjusted gross income, it could reduce Medicare premiums and the amount of taxes owed from Social Security payments.
As you consider making a Qualified Charitable Contribution, keep these key points in mind: the QCD must be paid directly to the charity from the IRA; the taxpayer must be at least 70 ½, and the charity must be a 501(c)(3) organization and not a private foundation.
Under the new tax code, it is estimated 90 percent of filers will now take the new standard deduction. The QCD strategy is the most useful to this group of taxpayers. To find out if making a QCD is right for you, consult your tax advisor and financial planner.
If you don’t have a financial advisor, I’d be more than happy to answer any further questions you have.
Justin R. Ivey
Neither Voya Financial Advisors nor its representatives offer tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.