Reduce your tax burden through qualified charitable distributions.
IRA Qualified Charitable Distributions (QCDs) allow certain taxpayers to make annual, tax-free transfers directly from an IRA to qualified charities. In appropriate cases, this strategy can provide meaningful benefits to charity at a reduced income tax cost to the taxpayer.
Seven things you should know when planning QCDs
- You must be at least 70 ½ years old on the actual day of transfer to the charity.
- Only IRA funds that are taxable at the time of distribution will qualify for QCD purposes.
- The total amount you can transfer from an IRA to charity is $100,000 per year. If your spouse also has an IRA, he or she may also transfer up to $100,000 per year. Any amount transferred over the $100,000 limit will not qualify and cannot be carried forward to future years.
- QCDs can be made from your IRA, SEP or simple IRA accounts provided that the accounts are not ongoing. An account is considered ongoing if an employer contribution is made within the same plan year or tax year as the QCD. QCDs are not available for other retirement accounts, such as 401(k) plans.
- Your IRA custodian should make the QCD payable to the charity, not to you. A distribution made payable to you before making a contribution to the charity will not qualify as a QCD.
- A qualified charity is an organization the IRS deems eligible to receive tax deductible contributions. Qualified charities do not include certain private foundations, donor-advised funds or charitable remainder trusts.
- A single transaction cannot be used as both a QCD to reduce your taxable income and an itemized charitable tax deduction
Potential benefits of qualified charitable distributions
- Donate to eligible charities from your IRA without paying taxes on the distribution.
- Reduce your taxable income by the amount of the QCD, up to $100,000 per year.
- For taxpayers who take the standard deduction, a QCD provides an added tax benefit for a gift to charity.
- Satisfy the annual IRA required minimum distribution.
- Lower your tax rate and increase access to deductions, credits and various tax breaks by reducing your taxable income.
- Potentially reduce the impact of the 3.8% surtax on net investment income on your tax bill.
- Avoid paying higher taxes on social security benefits and higher Medicare premiums due to an increase in taxable income.
Contact your Texas Capital Bank Private Wealth Advisor to learn how to use QCDs
to maximize your retirement dollars now and in the future.
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