QCD With Your RMD
Ok, enough with the barrage of acronyms!
If you are single or married and are receiving Required Minimum Distributions (RMDs), you may want to consider the Qualified Charitable Distribution (QCD) strategy to lower your Federal Income Tax liability, and possibly your IRMAA (Income Related Monthly Adjustment Amount), which concerns your Medicare Part B and/or Part D monthly premiums.
QCDs have been in place since 2006, but are now possibly more valuable with the gigantic increase to the standard deduction ($13,600 for single filers aged 65 and older, while married joint filers’ deduction is now $26,600). With the draconian cap of 10K on the deduction for State and Local Tax (SALT) taking effect this year, a married couple that has: (1) not incurred enough medical expenses to warrant itemizing, and (2) has no mortgage interest write-off, may very well be using the standard deduction on the 2018 Federal Income Tax Return.
Such filers utilizing the enhanced standard deduction would gain NO benefit from their charitable donations.
Here is an ideal use of a QCD! A married couple with 200K of other Adjusted Gross Income, plus a $15K RMD from one or both of their Individual Retirement Accounts (IRA), taking the standard deduction as their itemized deductions do not exceed $26.6K, will pay $3,600 less in Federal Income Tax by advising their IRA Administrator to direct that 15K to their selected charities.
Be mindful, too, of those expensive Medicare Part B premiums. If you fall into a higher band of Modified Adjusted Gross Income, the annual cost to a married couple can easily be more than $1,900.
Just a few don’t(s) to be wary of:
- QCDs cannot be made to a Donor Advised Fund (a topic for another day)
- QCDs cannot be directed to a private foundation
- The QCD transfer cannot exceed 100K per person (not per IRA) per year
- Funds already withdrawn from an IRA cannot now be designated as QCDs
Please let us know if we may assist with this idea or any other tax related question, issue or situation that you may want to pursue.
Ken Stewart, CPA