Qualified charitable distributions that save retirees on their income tax bill

Consider Giving Your Required Minimum Distribution to Charity

"If you're over 70½, you can give up to $100,000 each year tax-free from your IRA to a 501(c)3 charity, called a "qualified charitable distribution" or QCD. The gift counts as your required minimum distribution but isn't included in your adjusted gross income. (Even though the minimum age for RMDs rose to 73, it's still 70½ for QCDs.)" Source: Start Planning for Your 2021 RMDs Now by Kimberly Lankford, USNWR, https://money.usnews.com/money/retirement/iras/articles/start-planning-for-your-rmds-now

QCDs can come from a TRADITIONAL IRA, not a Roth IRA because you've already paid taxes on the contributions to your traditional IRA but not your Roth.

You must be at least 70½ at the time of the distribution. A QCD can be made after age 70½ even if you're not subject to RMDs yet (because you're under age 73, as of 2024).

RMDs are required because you took advantage of a tax break while savings for retirement; check out my blog posts on required minimum distributions.

This can be especially helpful if you don't itemize your income-tax deductions and wouldn't be eligible for much of a tax break for your charitable contributions. Keeping the donation money out of your AGI can also help you avoid the Medicare high-income surcharge and may reduce the portion of your Social Security benefits that is subject to income taxes. Medicare participants who earn a high income have to pay an IRMAA, an extra charge on Medicare Parts B and D. The fee kicks in if you make more than  $103,000 in 2024 or if you and your spouse collectively earn over $206,000 in 2024).

Far fewer tax payers itemize their deductions now that the standard deduction is $29,200 for married couples filing jointly. The standard deduction for a single person will be $14,600 in 2024 (for income earned in 2024 and tax returns filed in 2025).

• If you are 65 or older, single, married filing separately, or head of household, you may increase your standard deduction amount. If you are a single senior taxpayer, you can claim an additional standard deduction of $1,950, married seniors are entitled to an additional $1,550.

• If both of you are 65 or above, the increase in the standard deduction is equal to $3,500.

Qualified charitable distributions are probably the best tax break available for retirees and are underused. Donate the money from your IRA to charity before making other kinds of charitable contributions. Ask your IRA administrator for the procedure – the money must be transferred directly from your IRA to the charity for it to stay out of your AGI.

Note that the charity will send you a charitable donation receipt BUT you cannot claim a charitable deduction for a QCD. So be sure to keep track of which donations were made through a QCD. Your IRA custodian has no way of knowing if a particular distribution meets all the requirements for a QCD.