The Middletown Press (Middletown, CT)
QCDs: Regain the tax benefits of donating to charity
One of the benefits of giving money to charitable causes has always been the tax break: If you itemize you can deduct what you give. But the Tax Cuts and Jobs Act, which takes effect this year, has nearly doubled the standard deduction, which makes it counterproductive for many people to itemize.
However, there is still a way for you to give generously to your favorite charities while enjoying significant tax benefits, if you’re over age 701⁄2. It’s called a qualified charitable distribution (QCD).
QCDs were created in 2006 to give people a simpler way to donate money tax free without having to itemize. With a QCD you instruct your IRA custodian to transfer funds directly to your chosen charity or charities — the money cannot be payable to you.
Normally, when you withdraw the required minimum distribution (RMD) from your IRA accounts each year, you must add that amount to your taxable, adjusted gross income (AGI). However, if you designate your QCD as part of (or all of) your RMD, you don’t have to add it to your AGI. That’s a lot of acronyms, but the point is your taxable income is lowered by the amount of your donation, which not only lowers your tax tab but can also keep you in a lower tax bracket. It can also lower your Medicare premiums and Social Security taxes, depending on your income level.
As with most tax matters, there is a complex set of rules attached, so it’s best to turn to your CPA and your advisor to sort through this. However, here are some of the ins and outs of using a QCD:
⏩ You do not have to match your donation to the amount of your RMD. The upper limit for a QCD is $100,000 per person, so you can donate much more than your RMD. You can also designate a lower amount: For instance, if your RMD is $16,000 you can instruct your IRA custodian to send $6,000 to your designated charities and make $10,000 payable to yourself. Of course, you would then have to add $10,000 to your taxable income, but that’s less than $16,000.
⏩ You can send up to the $100,000 annual limit to one or more charities, as long as they all are qualified charitable organizations in the eyes of the IRS. For example, you can give $90,000 to the ABC charity and $10,000 to the XYZ charity. You cannot use a QCD to donate to private foundations or donoradvised funds.
⏩ You cannot use a QCD and take an itemized deduction on the same funds.
⏩ Only traditional IRAs and inherited IRAs are eligible. You can also use SEP IRAs and SIMPLE IRAs if they are inactive.
⏩ Remember, your custodian must make a check out payable to the charity, not payable to you.
These are some of the rules but certainly not all. Please seek professional advice as noted above. Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors Inc., A Registered Investment Advisor. Cambridge Investment