Today we wanted to quickly highlight a popular financial planning mechanism at Mirus Planning: the Qualified Charitable Distribution (QCD).
What are they?
This is a charitable distribution directly from individual retirement accounts (IRAs) that is allowable for clients 70 ½ and older. These distributions allow an individual to donate to a qualified 501(c)(3) non-profit organization directly from their retirement accounts, which can potentially lower taxable income as well.
Why consider making one?
For clients who take the standard deduction & donate to charitable organizations, this is generally a more tax-efficient way to donate than directly donating cash to these organizations. An additional benefit for clients 73 & above (2023 RMD age) is that these QCD donations count towards the required minimum distribution amount you must take out of your retirement accounts each year. To summarize, QCDs can increase tax-efficient charitable gifting: more money to your favorite causes, lower taxable income levels (which can trigger additional taxes), while also counting towards the IRS’s RMD distribution rules for retirement accounts. This is what we consider a win-win for all parties involved and why it is a popular planning tool here at Mirus.
How to initiate a QCD?
If you are over 70 ½ with IRA assets at Mirus Planning, please reach out to us to learn how you can implement this as part of your overall planning strategy. We just need a few pieces of information from you and we can prepare the necessary paperwork that can be signed electronically:
- Charitable Organization Name
- Charitable Organization Address
- Amount of Donation
- Department/Attention to: (if applicable)
- Memo/Behalf of: (if applicable/desired)
Annual distributions: We can also set-up annual distribution frequency if you have some favorite organizations you intend to gift to each year, which can help reduce paperwork burdens.
Important note - It is important to make your tax preparers aware of QCDs you have made. Unfortunately, the IRA custodians do not have the ability to verify these distributions are indeed going to qualified charities, so tax forms produced by them will no denote these as tax-free distributions on form 1099R.
If you have any questions about how these can be implemented with your overall plan and portfolios, please reach out to us for more information!
Best regards,
Kyle Temple
CFP®, CPWA®