To encourage you not to leave all the year-end tasks until, well, the end of the year, I’d like to explain a charitable gifting hack for readers aged 70 ½ and older.
The Qualified Charitable Distribution (aka QCD) allows people aged 70 ½ and older to gift money directly from their tax-deferred IRAs to a 501(c)3 charity (or multiple charities) of their choice. If you plan to gift to charity and fall into the right age group and have an IRA, this is the best way to make the gift.
How it works:
Money goes straight from your IRA to the charity. The IRA withdrawal never comes to you, therefore you totally miss paying income taxes on that money.
This is better than a tax write off. Money never received or taxed is better than getting a tax break on money received and taxed.
Also, if you are not itemizing, which many retirees do not, you are still getting a tax advantage on the charitable gift by avoiding income taxes on that portion of your IRA withdrawal.
Some things to know:
- You cannot send a Qualified Charitable Contribution to your donor advised fund. It has to go directly to a charity.
- Charity is the key word – this money can’t be used to pay off your grandson’s student loans.
- Even if you are not at the Required Minimum Distribution age yet (with the new older ages in place), you can still do the QCD starting at age 70 ½.
- BUT, you have to be age 70 ½ or older when you initiate the gift. In other words, if you are in the YEAR you will turn 70 ½, but you haven’t hit that (completely odd and stupid) date yet, don’t initiate the distribution until you have attained the age.
- Your broker will have a form to fill out to instruct them where to send the money.
- Don’t wait until December 30th to initiate the transaction! These things take time to process.
- The maximum amount you can gift each year is $100,000 regardless of the amount of your required minimum distribution. In other words, you can gift more than your RMD or less than your RMD, but no more than $100k/year.
Happy gifting!
