With the passage of the 2017 Tax Cuts and Jobs Act (TCJA), there are changes that impact charitable giving. More specifically, individual donors and nonprofits can leverage the 2017 TCJA to make smarter philanthropic contributions with the Qualified Charitable Distribution (QCD).

The Qualified Charitable Distribution (QCD) and the impact of the 2017 Tax Law.

A QCD is a direct transfer of funds from an IRA of a donor aged 70.5 or older, to a qualified charity. The QCD allows multiple distributions from the same account in the same year and they will help satisfy the required minimum distribution (RMD) for the year, as long as you comply with specific administrative rules. Due to the direct transfer to charity, the QCD from an IRA is excluded from the donor’s taxable income and must be less than $100,000 for the year. Keeping your taxable income lower by making a QCD may reduce the taxation on Social Security and may prevent your tax bracket from moving to higher Part B and Part D Medicare taxes.

The impact of TCJA will increase the use of the QCD by charitable donors. The standard deduction has almost doubled to $24,000 per year and, for seniors both over age 65, the new standard deduction is now $26,500 per couple. With such a significant increase in the standard deduction, many donors will lose the tax saving incentive of charitable deductions. Therefore, they will now take advantage of the higher standard deduction. For donors required to take the RMD and who do not need the distribution for income, it makes financial sense to make QCDs from an IRA.

Benefits of the QCD for Charitable Donors.

For donors, there are two main benefits of using the QCD. Firstly, the distribution counts toward satisfying the RMD for the year. Secondly, the distribution does not count as income and therefore is not taxed. Depending on your own individual financial situation, the potential benefits of the QCD may include:

  • Savings on federal, state, and local income taxes
  • Ability to give more to charity
  • Satisfy your IRA required minimum distribution
  • Avoid the net investment surcharge
  • Avoid excess Medicare Part B & D taxes
  • Reduced income taxes on your Social Security

How Charitable Donors Can Leverage the QCD for Smart Giving.

If you are a charitably inclined individual donor aged 70.5 or older and have an IRA with an RMD, you may want to:

  • Assess whether you need your IRA distribution for monthly support. If you take your IRA distribution as income to support your lifestyle, then a QCD may not be suitable. On the other hand, if you do not depend on the IRA distribution, you are not using these funds for lifestyle support and set aside your IRA RMD after-tax proceeds, a QCD may work well for you.
  • Calculate the tax impact of a regular IRA distribution vs. a QCD from your IRA. Take into account the impact of ALL the taxes that may be incurred with the higher income. These include federal and state income taxes, social security, additional charges on Medicare Part B and Part D, net investment and other possible taxes. Consult your tax professional to see how much a QCD may save you on your taxes.
  • If you determine that the QCD makes sense for part or all of your IRA distribution, you may want to find out if your current IRA custodian makes it simple to create a QCD. For example, one major discount brokerage firm offers free restricted charitable check writing on IRA accounts. This makes it easy for the IRA owner to simply write a check to the charities of their choice.
  • If charitable check writing from your IRA account is not available, contact your advisor/custodian to explore the administrative process for making QCDs. Check and clarify what costs, if any, are involved.
  • Avoid excess Medicare Part B & D taxes
  • It is always important to check with your professional tax advisor to receive guidance on how you can best incorporate tax-smart charitable giving decisions in your overall tax planning.

 

©2018 Aspire to Give®. All Rights Reserved. Greg Doepke is a Chartered Advisor in Philanthropy® and a Certified Financial Planner®. Greg serves on the Board of Directors for the International Association for Advisors in Philanthropy and as the Philanthropist in Residence at Auburn University’s Cary Center for the Advancement of Philanthropy and Nonprofit Studies. As the founder of Aspire to Give® Greg educates and equips individuals, families, business owners, and foundations with both traditional and leading-edge philanthropic tools and techniques for smart, meaningful, and impactful giving. You can contact Greg at This email address is being protected from spambots. You need JavaScript enabled to view it.

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The thoughts and opinions expressed in this blog are not representative of the views of ACG Advisory Services, Inc. or the Actuarial Consulting Group, Inc. of Midlothian, Virginia. Each client and prospective client agrees, as a condition of precedent to his/her/its access to Aspire to Give®’s website to release and hold harmless ACG Advisory Services, Inc. and Actuarial Consulting Group, Inc., their officers, directors, owners, employees, and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized advice from Aspire to Give® or Gregory W. Doepke.