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Required Minimum Distributions (RMD’s) can create an unwanted tax burden. Tax law requires you distribute a certain amount of funds from retirement accounts like 401k’s and IRA’s in the form of RMD’s. If you don’t necessarily need these funds, or are in a high income year, this can be a bummer. There are some strategies to help with this, and we discuss one below…
Qualified Charitable Distribution (QCD’s)
QCD’s are a direct transfer of funds from your IRA into a qualified charity.
Amounts distributed as a QCD pacify RMD requirements, up to $100,000.
QCD amounts are also excluded from your taxable income. This is critical as it could help avoid you being pushed into a higher tax bracket and may help your eligibility for other tax credits and deductions. Having the lower taxable income could also reduce the amount of your Social Security benefits that are subject to taxes. Keeping income lower has several potential benefits.
With the 2018 standard deduction increases, more filers are no longer itemizing, so charitable contributions may no longer be providing a benefit. So rather than distribute retirement accounts as taxable income and then make a charitable contribution that isn’t effectively deducted for non-itemizers, a QCD could provide the same net benefit by not adding to taxable income in the first place.
Before implementing a QCD, be sure to check with your advisor on additional qualification requirements.