Qualified Charitable Distributions (QCD)

With the new tax law, the standard deduction was raised considerably. Due to this change, not as many people will be able to itemize. So this begs the question, are my charitable donations worth anything anymore? We have one possible solution to this question and the answer is yes, if you are 70 ½ or older you can use the QCD (Qualified Charitable Distributions) deduction.

Individuals age 70 ½ or older can make QCDs, which are transfers from their IRAs directly to a qualified charity [IRC Sec. 408(d)(8)]. QCDs are limited to $100,000 per individual per year and are not included in the individual’s income or allowed as a charitable deduction.

QCD’s can also count towards your required minimum distributions (RMD). For example, if in 2019 your RMD was $10,000 and you made a $5,000 qualified charitable distribution for 2019, you would have to withdraw another $5,000 to satisfy your 2019 required minimum distribution.

Let’s talk about how you can save taxes using a QCD. Building off the first example, let’s say your total income for the year was $100,000 and your RMD was $10,000 and you made a $10,000 QCD. You would satisfy your RMD for the year and you would save $2,200 in taxes because the $10,000 would not be included in income on your tax return!

The new tax law raised the standard deduction which makes itemizing more challenging. Even with the new standard deduction whether you itemize or not you can take this QCD deduction on your tax return.