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Plan Your Charitable Giving Before Year-End

Plan Your Charitable Giving Before Year-End

November 29, 2022

As the end of the year fast approaches, you may be ready to make year-end charitable contributions. Whatever cause you value most deeply, changes to the tax code in 2020 may limit the tax deductions you can take for charitable donations.

However, another way to lower your tax bill is qualified charitable distributions (QCDs). A QCD is a nontaxable distribution from your IRA that is paid directly to a qualified charity of your choice. You do not receive a tax deduction for the gift, but the transfer from your IRA is not counted as taxable income. You can make a QCD starting at age 70 ½.

For those 72 and older and taking required minimum distributions (RMDs) from your tax-deferred retirement accounts, QCDs provide an additional benefit. You can use a QCD to offset the impact of RMDs on your taxable income. How does it work? When you gift your RMD withdrawal amount to a charitable organization via a QCD, you lower your taxable income by the total amount of the gift.

When making a QCD, there are some requirements to be aware of:

  • You can only make a QCD through tax-deferred retirement accounts like a traditional IRA or inactive SEP IRAs and SIMPLE IRAs. Roth IRAs and 401(k)s do not qualify.
  • You must be at least 70 ½ years old on the date of the transfer to qualify.
  • Up to $100,000 in QCDs can be used to satisfy RMD requirements. Note that the max limit is per person rather than per IRA account.
  • You cannot use a QCD for donations to donor-advised funds or private foundations.
  • Timing matters. A QCD cannot offset income from an RMD already taken, so consider initiating a QCD earlier in the year. You can plan for next year.
  • No gifts or other benefits are allowed in exchange for your donation.
  • The funds must be transferred from your IRA to the charity before December 31 (or your RMD deadline).

Connect with us before the end of the year to better understand how a QCD can lower your taxable income. We can discuss the requirements and determine the best strategy for helping you give generously to others—while also giving generously to yourself through tax savings.