As year-end approaches, it’s a good time to revisit your distribution and giving strategies, especially if you’re subject to a Required Minimum Distribution (RMD). By directing it to a charitable cause, you can make a difference while potentially easing your tax burden.
What You Need to Know About RMDs
Once you turn 73, traditional Individual Retirement Account (IRA) owners are required to withdraw a minimum amount each year (your RMD). These withdrawals are taxed as ordinary income and can push you into a higher tax bracket, which may create retirement planning concerns.
How a Qualified Charitable Distribution (QCD) Can Help
A QCD allows you to donate part or all of your RMD (up to $100,000 annually) directly to a qualified charity, satisfying your distribution requirement while potentially reducing your taxable income.
Here’s how it works:
- Choose a qualified charity recognized by the IRS.
- Notify your IRA custodian of your intention to make a QCD and specify the amount.
- The custodian sends the donation directly to the charity.
Important: The donation must go directly from your IRA. If the money is sent to you first, you may lose the tax benefit
Who Should Consider a QCD?
A QCD may be right for you if you:
- Want to support a charitable organization with your RMD.
- Prefer donating directly to an approved charity rather than establishing a foundation.
- Are seeking to reduce your Adjusted Gross Income (AGI) to manage overall tax exposure.
- Intend to make a larger impact through tax-efficient giving.
Make Your Year-End Strategy Count
Your RMD doesn’t have to be just another withdrawal, it can be an opportunity to align your wealth with your values. RMDs must be taken by December 31 each year.