If you’ve reached that magical age of 70½, you qualify to donate up to $100,000 annually to charity with funds in your IRA through a Qualified Charitable Distribution (QCD). Not only will the donation satisfy all or a portion of your Required Minimum Distribution (once you’re 72 years old), but it is also not included in your Adjusted Gross Income (AGI). If you’re married, each of you may contribute up to $100,000 with a financial gift from your separate IRAs (assuming both of you are 70½).
A QCD is a direct transfer of funds from your IRA custodian to a qualified charity, such as the Dallas Hebrew Free Loan Association. A QCD excludes the amount donated from AGI. This is much more valuable than including the distribution in AGI and then taking an itemized deduction. Itemizing deductions on your return will only benefit you if your charitable contributions, along with your other eligible deductions (such as mortgage interest and real estate taxes), exceed $26,450 (or $27,800 if both spouses are age 65+) in 2021 on a joint return or $14,250 for a single filer.
Requirements for QCD
- Donor must be 70 ½ or older at the time of the distribution
- The financial gift distribution must be an otherwise taxable distribution (other than an active SEP or SIMPLE IRA*)
- Distributions must be made directly to an organization eligible to receive tax deductible contributions (certain exclusions apply)
- $100,000 annual limit
- Charity receiving gift must provide proper substantiation of the gift
Benefits
- Satisfies all or a portion of your Required Minimum Distribution in the year QCD is made
- QCD is not included in the donor’s AGI, helping to potentially avoid increased taxes on SSI and higher Medicare premiums, and the loss of other deductions/exemptions
- Provides donors that utilize the standard deduction a tax efficient way to make a charitable financial gift
Here’s an example of a $10,000 contribution made to the DHFLA in 2021 through a QCD vs. taking an IRA distribution and subsequently making the donation:
Assumptions
- Filing Status: Married Filing Jointly
- Taxpayer ages: Both 65+
- Income: $110,000
- Itemized deductions (including the $10,000 contribution to DHFLA): Under $27,800
| QCD | No QCD | |
| Income | $ 110,000 | $ 110,000 |
| IRA Distribution | – | 10,000 |
| Charitable contribution deduction | ( – ) | ( 600) |
| Adjusted Gross Income | 110,000 | 119,400 |
| Standard Deduction | ( 27,800) | ( 27,800) |
| Taxable Income | $ 82,200 | $ 91,600 |
| Tax | $ 9,581 | $ 11,649 |
The difference in tax between the two is $2,068. That’s money in your pocket!
If you’re like most of us, understanding income taxes is not a high priority item. So, get in touch with your tax advisor to help you determine if both your IRA and charity qualify for QCDs. A financial gift from your IRA can provide the helping hand that so many members of the North Texas Jewish community need. Savvy financial gift giving provides financial and positive emotional benefits to you, and no interest loans to those who need assistance.
Interested in helping DHFLA with a savvy financial gift? DONATE NOW
* Per the IRS, a SEP or SIMPLE IRA is considered active if it has been maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which charitable contribution would be made.