Getting more “bang” for your charitable donation “buck”

by Paul Dreher, Financial Advisor, The Retirement Planning Group

For many people the holiday season is more than a time of thanks, gatherings, and celebration. It is also a time of finishing Required Minimum Distributions. Perhaps extra holiday cash is well-timed. You may have an annual tradition of re-investing a possible surplus of income back in to their portfolio. Plus, more folks than in the past are considering making a Qualified Charitable Donation (QCD) as a portion of their Required Minimum Distribution.

A QCD is a direct transfer of funds from one’s IRA payable to a qualified charity. Making a charitable contribution in this manner potentially offers greater tax avoidance for the donor. Here is an example:

John is 75 years old and has a Required Minimum Distribution amount of $30,000 for the year 2019. He can donate $10,000 directly to Kansas City Hospice or a 501c3 recognized organization tax-free. Thus, he can reduce his taxable income for the year by the $10,000. John would receive a check made payable to the charitable organization then would indicate his donation on his tax return.

If John received his full Required Minimum Distribution of $30,000 as a withdrawal made payable directly to himself THEN donated $10,000 to a charity he may NOT actually reduce his taxable income. Millions of people now take the standard deduction as a single individual of $12,200. John misses out on the exxtra $10,000 charitable deduction.

Thus, in John’s case the QCD allowed him to take his reduction of taxable income from the standard deduction and the charitable donation for a total reduction of $22,200.

A few things that John needs to keep in mind are:

• He must have fully reached age 70.5 before he makes a Qualified Charitable Distribution
• The maximum annual exclusion for a QCD is $100,000/year for an individual
• If he has non-deductible money co-mingled with deductible money in his IRA only the deductible dollars qualify for the QCD
• He should consult his tax preparer and/or financial advisor if he has those relationships

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