The Gift That Gives Back: Leveraging QCDs in Your Financial Strategy
In this season of giving, it can be a good time to reflect on how we can share our resources with those in need. For the charitably inclined, one avenue for making a difference is through qualified charitable distributions.
QCDs can be a powerful tool for donating to charity from your individual retirement account (IRA) while lowering taxable income and satisfying required minimum distributions (RMDs).
Breaking Down Qualified Charitable Distributions
Let’s unpack what QCDs entail. In essence, a QCD is a direct transfer of funds from your IRA custodian, payable to a qualified charity.
You must be 70 ½ or older to make a qualified charitable distribution. For 2023, you can donate up to $100,000 annually without including the distribution in your taxable income. If you are married and file your taxes jointly, you and your spouse can each make a $100,000 QCD from your individual IRAs.
A QCD can lower your adjusted gross income (AGI), creating beneficial ripple effects on various tax credits and deductions and Medicare premiums tied to your AGI.
Satisfying Your RMDs
Once you are obligated to take required minimum distributions from your IRA, you can use QCDs to satisfy your RMDs and exclude the amount from your income.
By channeling these funds towards charity, you’re fulfilling an IRA requirement and doing so in a manner that benefits society and your tax bill.
Changes Under the SECURE 2.0 Act
With the advent of the SECURE 2.0 Act, you can now make one-time QCDs to split-interest entities. These include charitable gift annuities, charitable remainder annuity trusts, and charitable remainder unitrusts. However, these entities are subject to different contribution limits—$50,000 for 2023.
Distribution Limits to Increase in 2024
As we move into 2024, the IRS has announced increased retirement contribution limits. This means that while you can put more into your retirement accounts, you’ll also have more to distribute as QCDs.
For 2024, the limit for a QCD to a qualified 501(c)(3) charity is $105,000. For a split-interest entity, it is $53,000.
The QCD Process
So, where do you begin? Consider the charities you wish to support and whether they are eligible for QCDs. You’ll also want to consider the timing of your distribution, especially if you want to apply it to your RMD in a particular year. The RMD deadline is December 31.
Here’s where the expertise of a fiduciary financial advisor can become valuable. Working with an advisor with a legal obligation to put your interests first can help you navigate the complexities of QCDs and incorporate them into your overall financial plan.
At Parkshore Wealth Management, we work with clients to help them structure their QCDs for maximum impact—both for the causes they care about and their own financial future.
Here are a few tips to bear in mind:
Ensure your IRA custodian transfers the funds directly to the charity to qualify as a QCD. The money should not go through you.
Keep excellent records of your QCDs, as you’ll need to report the distributions on your tax return.
If you’re considering a QCD, it can be beneficial to start the process early in the year to avoid potential processing delays.
Doing Good for Yourself and Others
Qualified charitable distributions can offer a wonderful opportunity to support the causes that resonate with you and receive potential tax benefits. It’s a strategy that not only embodies the spirit of giving but also aligns with a savvy financial mindset.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.