A Tax Strategy to Get More from RMDsSubmitted by Fountain Financial Associates | Financial Advisors on February 13th, 2019
Posted by Buck Beam in the FFA Spring 2019 Newsletter
If you have reached the magic age of 70 ½ and regularly donate to charities, there may be a way for you to stretch the impact of your IRA required minimum distribution.
Changes brought about by recent tax reform make the use of Qualified Charitable Distributions, or QCDs, attractive to even more taxpayers. A QCD is a distribution from an IRA that is transferred directly to a qualified charity. The distribution is tax-free, although no income tax deduction is allowed. This is a great way for clients with RMDs to avoid the necessity of receiving a taxable distribution.
Here are some frequently asked questions about QCDs and how they may work for you. Let us know if you would like to discuss this strategy for your own circumstances.
Qualified Charitable Distribution FAQ:
What is a QCD?
QCD stands for Qualified Charitable Distribution. It is a distribution from an IRA transferred directly to a qualified charitable organization. The distribution is not included in the IRA owner’s taxable income.
Who is allowed to use a QCD?
Only IRA owners aged 70 ½ and older.
Can a QCD be used to satisfy a RMD?
How much can be contributed to a charity via QCD?
$100,000, per person, per year, regardless of the RMD amount. A married couple could contribute up to $200,000 through this rule.
Why is the QCD particularly beneficial starting in 2018?
With the increased standard deduction as part of the new tax law changes, it is likely fewer taxpayers will be itemizing deductions. The QCD reduces the amount of taxable income and thus creates more tax savings for those using the standard deduction. Reduced income also may lead to reduced Medicare premiums and reduced taxation of Social Security benefits
Can a QCD be made from a 401k or other ERISA retirement plan?
No, a QCD can only be made from an IRA.
Can a QCD be transferred to a donor advised fund or other foundation?
No, a QCD must be transferred directly from the IRA custodian to a 501(c)(3) charity.
Are QCDs reported on the 1099 at the end of the tax year?
No, there is no special designation for the QCD on the 1099 form. It is very important that the tax preparer know how to document the QCD on the 1040 tax return in order to make sure it is properly reported to the IRS.
How do I make a QCD?
Contact us and we will walk you through the process. We will need information about the charity and generally will need you to sign an IRA distribution form.
*For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice