Give it Away, Now: Making a Qualified Charitable Donation (QCD) from Your IRA

February 11, 2020
By Kim Cox, CFP®

One of the more enjoyable aspects of starting a new year (and new decade), is seeing that year-end to-do list in the trash bin. However, much like holiday shopping in July, now is the perfect time to being thinking about strategies for year-end planning for 2020.

For those who are required to take minimum distributions (RMDs) from IRAs, one way to reduce taxable income is to make charitable donations directly from IRA accounts. This is especially effective since the Tax Cuts and Jobs Act of 2017 made itemizing deductions less attractive for many people. In addition, lowering income by making a QCD may also help reduce future Medicare premiums.* 

The QCD as a tax strategy allows individuals that are at least 70 1/2 years old and want to make charitable gifts to give up to $100,000 from their IRA RMD directly to a qualified charity. The 70 1/2 age is unchanged, despite the new SECURE Act increasing the regular IRA RMD age to 72.

Using this QCD strategy, the amount gifted to charity is not reported as taxable income, which lowers adjusted gross income on Line 7 of Form 1040. Note that if you are itemizing deductions, you may not also claim a charitable deduction on your tax return for any QCD amount. 

This strategy can be used from your IRAs (and inherited IRAs) as long as you meet the age requirements. However, you cannot use the strategy for RMDs from qualified retirement plans or a Thrift Savings Plan. If you want to make a QCD from these assets, you will need to transfer balances to an IRA. 

If you would like to talk more about this tax saving strategy, please call your relationship manager to explore opportunities and quantify tax savings.

Meet Kim Cox, CFP®.

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To view other articles in the February 2020 Financial Planning Focus newsletter, click here.

Important Disclosures

*Under current tax law, Medicare Part B and D premium surcharges are assessed based on prior year adjusted gross income. In 2020, Part B and D surcharges start for singles who earn more than $87,000 and couples who earn more than $174,000. There is a two year look back, so the premium for 2020 is calculated on 2018 income. Surcharges can range from as low as $144.60 per month for Part B and $0 for Part D to as high as $491.60 for B and $76.40 for D for filers earning above $100,000 (single) and $750,000 (couples).

West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements.

Certain information contained herein was derived from third party sources, as indicated, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS.

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for individualized investment advice.