The IRS mandates that IRA account owners begin taking required minimum distributions (RMDs) at age 73. The account owner will be taxed at their income tax rate on the amount of the RMD.
However, a qualified charitable distribution (QCD), also referred to as a charitable IRA rollover, may provide an excellent tax strategy that can minimize your taxes, while maximizing your charitable impact. QCDs can also be made from inherited IRAs, as well as inactive SEP IRA plans and inactive SIMPLE IRA plans.
Making a QCD is not taxable, and it is not added to your adjusted gross income (AGI). Please note that if you itemize on Schedule A, you cannot deduct the QCD as a charitable contribution. The QCD counts towards your annual RMD and should be taken before you take your full RMD for the year.
The QCD must be transferred directly from your IRA to one or more qualifying charities (generally it is a 501(c)(3) organization) and cannot be donated to donor-advised funds. A QCD of up to $105,000 per year for an individual donor is allowed. For married couples each spouse can make a QCD up to $105,000, for a total of $210,000 per married couple. These amounts are also indexed for inflation.
Please note that at age 70½, individuals or couples have the option to begin making a QCD. However, contributing to an IRA may result in a reduction of the QCD amount you can deduct. Also note that the SECURE 2.0 Act allows for individuals 70½ and older to make a once-in-a-lifetime distribution directly from their IRA to one or more Charitable Gift Annuities (CGA), and that will be considered a QCD and count towards the annual QCD limit. For 2024, the CGA is $53,000 and will count toward any RMDs. It is advisable that you contact the custodian of the IRA to verify how this QCD is to be processed.
Contact Kakenmaster & Associates with any questions regarding this possible tax strategy.