02 Mar Cheat Sheet: Required Minimum Deductions

It’s important that you are prepared for your financial future.  And while we are here to give you tips and tricks it is always best to seek the advice of a trained financial planner.    This month we worked with information shared with us by Andrea Schafer, Edward Jones

Qualified Charitable Distribution (QCD)

A Qualified Charitable Distribution (QCD) allows Traditional or Roth IRA holders (including inherited, but excluding SEPs and Simple IRAs), age 70 ½ or older, to donate to a qualified charity, like the Northshore Schools Foundation, tax-free!

To qualify, the QCD distribution needs to be made directly by the IRA custodian/trustee to the Northshore Schools Foundation.  A QCD may satisfy your Required Minimum Distribution (RMD) and up to $100,000 of QCDs may be excluded annually from your taxable income.  Making a QCD provides an opportunity to make a charitable contribution that you might otherwise not have been able to make and/or receive potential tax benefits for charitable contributions that you are already making.

Requirements:

• As the donor, you cannot receive any benefit from making a QCD and the QCD will not be deposited by the Northshore Schools Foundation into a Donor Advised Fund.
• While the maximum amount of QCDs that can be excluded from your taxable income is $100,000 annually, per donor, deductible contributions made during or after the year an individual turns age 70 ½ will reduce the amount that may be excluded. Consult your tax professional to determine the tax-free amount you can withdraw in 2022.
• Checks must be issued by December 31, 2022 in order to apply to the current calendar year. If a Money Market check is written, it will apply to the year in which it is cashed by the Northshore Schools Foundation, so get your checks in early to get them to count for 2022!
• The SECURE Act requires the entire balance of the participant’s account be distributed within ten years to survivors. There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner. The new 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date, now age 72. You may wish to address this situation in your will and/or estate plan.

Key Benefits

For those who give larger gifts – Deductibility limits do not apply to QCDs, which means the QCD can be made in addition to other charitable contributions that may be limited by the annual maximum deductible percentage of income or phase-outs of itemized deductions.

For those who don’t itemize deductions – If QCDs are used as the funding source for charitable donations, the donor will receive tax benefits when there otherwise would have been none due to the use of the standard deduction.

For those who pay taxes on a portion of their Social Security benefits – Income for determining the taxation of Social Security benefits is lower than if  you had taken the RMD, potentially reducing this taxation.

For those whose income level subjects them to tax on Net Investment Income, or phase-out of personal exemptions or itemized deductions – A QCD made in lieu of an RMD will result in lower adjusted gross income for you the IRA holder, which may lessen the effect of this tax or applicable phase-outs.

As always, consult your tax professional to ensure that it is in your best interest to complete a QCD/RMD and if your distribution qualifies.