We have many in our church family who are retired or at an age where retirement is on the horizon. The faithful, generous givers in our church family continue to seek wise ways to continue their contributions to our church and other non-profits.
My friend and member of our church, Chris Daunhauer is a financial advisor and has written this article to help people understand the concept of Qualified Charitable Distributions (QCDs) and how these may lower one's taxable income. I am thankful for the wise counsel offered by Chris and his simple explanation. I am providing some links to various organizations that may offer additional helps as well.
QCD Explanation and Encouragement by Chris Daunhauer
If you are charitably minded AND you have to take required minimum distributions (RMDs) from an IRA or 401(k) because of your age, then you should consider doing at least the first portion of your charitable giving via QCDs (qualified charitable distributions) directly from your retirement account. QCDs lower your adjusted gross income (and your taxable income) and they may reduce your future Medicare premiums and the taxability of your Social Security benefits.
QCDs have become more popular since the 2018 tax code changes.
The doubling of the standard deduction that year has dramatically reduced the percent of taxpayers who itemize. It’s dropped from 30 percent of all returns down to only 10 percent. If you are in the 90 percent who do not itemize, your charitable giving no longer has any impact on the amount you pay in federal income taxes.
But….if you’re a retiree who must take required minimum distributions every year (you’re an IRA or 401(k) account owner who is at least 70 ½ years old), there is a potential work-around. The tax code allows you to donate some or all of the annual distribution from your retirement account directly to charities of your choice (up to $100k per year).
When done correctly, a qualified charitable distribution (QCD) satisfies the IRS rules for RMDs, and does so without that distribution being added to your AGI or taxable income. And, because your AGI is lower, Medicare premiums and the taxability of your Social Security may be lower as well. You pay no taxes on the portion of your RMD given to charity, and you can still claim the full standard deduction elsewhere on your tax return.
A QCD can help keep your charitable giving fully deductible regardless how high the standard deduction is.
QCDs offer surprising flexibility. You may split your RMD into multiple parts–some to yourself as taxable income for your own needs, and some directly to your favorite charities through QCDs. You can also give to multiple charities in a single year, and, if you prefer, you may make your QCD gifts to charity anonymously.
For most retirees, most of the time, doing as much of your charitable giving as possible via a QCD is better than taking your RMD as regular taxable income and then writing checks to your favorite charities from that income.
First Baptist Church of Orange Park already receives QCD donations from some in our fellowship, and our financial secretary can point you to more information on this method of giving. You can also contact your IRA or 401(k) custodian, your tax preparer, or financial advisor to learn more. QCDs are easy to do, tax smart, and fully recognized by the IRS.