For those of you or your parents that are at least 70 1/2 years old you should know about something called a Qualified Charitable Distribution (QCD).
It’s a wrinkle in the tax code that allows people to take their IRA Required Minimum Distribution (RMD) and give it directly to charity without incurring income tax.
For many people the extra taxable income from their RMD makes more of their social security income taxable (see SS link). For others it will mean higher Medicare premiums as your premium is determined by your past income (see link to Medicare premiums).
Other key points:
- RMD’s only apply to IRA’s of account owners that are over age 70 1/2.
- In order to make this happen the distribution check needs to be paid to the qualifying charity, not to you.
- The limit is $100,000
- While the RMD is no longer taxable, the donor will not get the income tax deduction
- A Donor-Advised fund does not qualify for this
- Make sure to discuss with your tax advisor
This can be a terrific gifting and tax saving strategy for seniors.
Please share with anybody you know over 70 1/2 that might want to take advantage of this gifting strategy.