Have you ever heard of a qualified charitable distribution (QCD)? It is not a commonly discussed point of tax planning, but it can be very valuable if you fit into certain criteria. In fact, it can save you thousands of dollars per year.
A qualified charitable distribution is when you send a withdrawal from your IRA directly to a 501(3)(c) organization. Examples of these would be churches or other religious organizations. Once you send the money from your IRA to the organization, they will be able to receive the contribution tax free as a donation to them. However, you will also receive a tax benefit. You will be able to deduct the amount of your contribution directly from your adjusted gross income. This means you can take a tax break on this donation, as well as taking the standard deduction in your tax filing. However, if you were to take the withdrawal from your IRA and send it to your bank, then afterwards decide to send the money to a church you would not be able to take advantage of the QCD. Instead, you would have to choose between including this donation as an itemized deduction, OR the standard deduction.
What are the rules? Well, you must be over age 70.5 in order to utilize a QCD. Also, the QCD must come from your IRA investment account. Because of this, it is a popular option for charitable inclined individuals who have reached the age where they must take a require minimum distribution (RMD). Instead of taking the RMD and paying tax on it they will send the RMD directly to a 501(3)(c) organization and take the tax break.
If you are interested in learning more about QCD's Join Nick and Jim of Peak Wealth Management as they meet with JJ Sovinsky, CPA to discuss the benefits of using a qualified charitable distribution (QCD). Also, learn more about JJ and his team at their website: https://www.sovinskycpa.com/