How Your IRA Distribution Could Translate Into Support for Faithful Friends…and Save You Money
For some retirees, the introduction of Required Minimum Distributions (RMDs) from traditional IRAs can be a mixed blessing. While a steady income stream may be essential for some, others may find themselves in a position where they don’t really need the extra funds that might push them into a higher tax bracket or increase their taxable income. If you’re fortunate enough to not need some or all of your RMD for day-to-day expenses, making a Qualified Charitable Distribution (QCD) could be an effective way to reduce your tax burden while supporting Faithful Friends.
Here are a few key points and benefits of making a QCD, an excellent strategy for retirees looking to avoid taxes on their RMDs while giving back.
What Is a Qualified Charitable Distribution (QCD)?
A Qualified Charitable Distribution allows individuals aged 70½ and older to donate up to $105,000 per year per person directly from their traditional IRA to a qualified charity, bypassing federal income taxes on the distributed amount. Even though RMDs are only required starting at age 73 (as of 2024), those eligible for QCDs can still leverage this tax-saving strategy earlier than the RMD age.
By making a QCD, the amount you donate counts toward your RMD for the year but isn’t included in your taxable income. This can significantly reduce the financial impact of the RMD, especially if you don’t need the funds for day-to-day expenses..
What Are The Benefits of Making a QCD When You Don’t Need Your RMD?
- Lower taxable income. Since QCDs are excluded from your gross income, they reduce your taxable income. This can be a valuable tool if you’re looking to stay within a lower tax bracket or avoid taxes on Social Security benefits and Medicare surcharges.
- Satisfy your RMD Requirement. The QCD counts toward satisfying your RMD, which is required once you turn 73. For retirees who don’t need the extra income, this is a tax-efficient way to meet that obligation.
- Smart charitable giving. You can support Faithful Friends without dipping into your other assets. It’s a win-win situation: you satisfy your RMD, lower your taxable income, and contribute to our lifesaving work with animals.
- Avoid itemized deductions. Even if you don’t itemize deductions on your tax return, you can still benefit from a QCD. Unlike charitable contributions made from non-IRA funds, a QCD allows for tax savings without the need to itemize.
Steps to Make a QCD to Faithful Friends
- Confirm your eligibility. You must be 70½ or older to make a QCD, even though your RMD age may be later. You can contribute up to $105,000 per year per individual from your IRA.
- Coordinate with your IRA custodian or financial advisor. Contact your IRA custodian or financial advisor to request a QCD. They will typically facilitate the transfer directly to Faithful Friends. It’s essential that the money goes straight from your IRA to our organization to qualify as a QCD. If you take the distribution first it will become taxable income, even if you donate all or part of it to us..
- Retain proper documentation. Keep records of the distribution and the acknowledgement we send you for tax purposes. While you won’t need to itemize this donation on your tax return, you will need proof that the donation qualified as a QCD.
- File the proper forms. When tax season comes, report the distribution on your Form 1099-R, which will show the amount of the QCD. Ensure that the correct information is filed with the IRS.
Final Thoughts
For retirees who don’t need some or all their RMD, a QCD is a powerful strategy to reduce taxable income while making a meaningful difference. By supporting Faithful Friends through a QCD, you can satisfy your RMD obligations, lower your tax bill, and help a cause you care about.
Before making a QCD, it’s important to consult with a financial advisor or tax professional to ensure you understand the tax implications and choose the best strategy for your situation. Then, if you have additional questions or comments for Faithful Friends about how you would like to have your QCD used (cat program, dog program, where needed most), reach out to Shannon O’Neill or Joyce Hoffman.
