How to make a charitable contribution really count at tax time
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. Key changes included increasing the age for Required Minimum Distributions, increasing the age limit for contributing to an IRA, the elimination of the Stretch IRA, and several changes for business owners who offer qualified plans to their employees. (You can read my previous posts about it here and here.)
One great charitable giving strategy that utilizes your IRA was surprisingly not affected. If you are required to take your RMD, and don’t need it for living expenses, you may consider donating it to charity.
The 2018 tax reform law raised the standard deduction, and fewer people are itemizing. As a result many don’t get a tax deduction for their charitable gifts. However, by making a qualified charitable distribution from your retirement account, you may be able to reduce your income by the amount of your donation and save on income taxes.
How a qualified charitable distribution works
When you are eligible to take your RMD, you can transfer up to $100,000 directly from your IRA to charity each year (called a qualified charitable distribution or QCD), which counts toward your RMD but isn’t included in your adjusted gross income for tax purposes.
You can make the transfer directly to one or more charities you choose. The transfer must be made directly from your IRA to the charity to count as a QCD; you can’t withdraw the money first. You will need a confirmation from the charity for tax filing purposes.
It’s part of a larger financial plan
By working with a trusted advisor with a written financial plan, you can use this strategy to support your causes in your lifetime. With the proper charitable and estate planning, you can lower your taxable estate and leave a legacy for your family and your favorite causes in the most efficient manner possible.
M Financial Planning Services is located in Marlton at 57 S. Maple Ave. Call Ed at 856-810-7701 or email him at firstname.lastname@example.org. Visit www.mfinancial.us. M Financial Planning Services is not affiliated with and securities offered through LPL Financial, Member FINRA/SIPC. The tax information provided is not intended to be a substitute for specific individualized tax planning advice. We suggest that you consult with a qualified tax advisor.