If you're over 70½, you can direct your IRA's required minimum distribution straight to charity and skip the taxes. A QCD keeps the money out of your taxable income, lowering your AGI and potentially reducing Medicare premiums and Social Security taxes. The annual limit is $111,000 per person, and you must initiate the transfer early in the year.
If you want to bypass getting taxed on your charitable donations, you're going to want to use something called a qualified charitable distribution, QCD. Here's how it works. Instead of taking your required minimum distribution or your RMD into your personal account first, and then writing a check to the charity, you tell your IRA custodian to send the money directly to the charity. That's it. The custodian writes the check, not you. And when that happens, 3 powerful things occur. One, the money counts toward your RMD. 2, it never shows up as income on your tax return. And 3, your adjusted gross income stays lower because of that. So picture 2 roads. The first road, your RMD comes out of your IRA and goes through a tax toll booth. Uncle Sam takes their 20%, 30%, or maybe 35%. Then what's left goes to charity. The second road, your RMD goes directly from your IRA to the charity. It bypasses the toll booth completely. Same donation, zero tax. Now, there are some rules. You must be at least 70 and a half years old. The money must go directly from the IRA to a qualified charity, and right now you can do that up to $111,000 per year per person. That amount adjusts for inflation each year too. So here's what makes it powerful. Because the money never hits your income, your adjusted gross income stays lower. Lower AGI means lower Medicare premiums, less Social Security is taxed, and possibly keeping deductions you would have otherwise lost. So here's a quick example. Let's say your RMD this year is $80,000 and you're planning to give $20,000 to your church. Well, in the old way, you take the full $80,000 as income, you pay tax on all of it, and then you donate the $20,000. You just paid tax on money you gave away. So the smarter way, send the $20,000 as a QCD, take the other $60,000 as cash, and only pay tax on the $60,000. Same giving, different tax outcome. So here's one critical point. The check must come from your IRA custodian, not from you. If you take the money out first and then try to donate it, it's too late. The toll booth already got you. So call your custodian early in the year, set it up well before December 31st. Don't wait until the last minute because they get inundated with requests.
Hey, if you've got a million or more in your IRAs, the IRS already has scheduled one of the biggest tax bills of your entire lifetime. It starts at 73 or 75 years old. The problem is most people just haven't seen the number yet. We have an RMD calculator that we've put together that'll give you an idea of what the taxes are going to be over your lifetime, as well as Maybe what's going to be left for your heirs if you leave it all to them. We've taken it a step further and we've cross-referenced that to people just like you that have been clients of ours, of over 3,000 of our clients. And we want to be able to give you an idea of what's possible for you to save if you get Roth conversions done right. So click the link below. It'll take you about 2 minutes and it'll be pretty alarming. Take care.
