Our client, Julie, called us with questions following a conversation with her mom, who was required this year to start taking a required minimum distribution (RMD) out of her Individual Retirement Account (IRA).

Julie shared that her mother had calculated the RMD from her IRA for the current year and was taken aback by the substantial amount. Known for her disciplined savings habits, she consistently maximized her contributions to retirement savings, resulting in a significant nest egg. Her primary concern was that receiving this large distribution would likely push her into a higher tax bracket. She asked if there was any way her mother could avoid taking the full RMD, because she was concerned about her tax bracket, and she didn’t feel she needed all that much to cover her expenses.

While sharing this information with us, we remembered that Julie’s mom was a longtime supporter of Susan B. Komen as her grandmother had passed away from breast cancer. We let Julie know, who later informed her mom, that she could use some or all of her RMD to make a Qualified Charitable Distribution to this organization or another one of her choosing. By utilizing a QCD, she would also avoid the taxation of that amount, thus reducing the taxable amount of her RMD.

Qualified Charitable Distribution is a provision that allows individuals 70 ½ years old or older to make direct charitable contributions from their IRAs to eligible charitable organizations. These distributions can be used toward fulfilling individual’s required minimum distribution amounts for the year.

• Age Requirements: You must be 70 ½ or older to be eligible to make a QCD.
• Maximum Limit: The maximum amount that can be distributed as a QCD for 2024 is $105,000 per individual. This will be indexed for inflation in future years.
• Eligible Charities: QCDs can only be made to eligible charitable organizations, meaning contributions to private foundations, donor-advised funds, and supporting organizations don’t qualify.
• Tax Benefits: The distribution amount of the QCD is excluded for an individual’s taxable income.
• Satisfy RMD: A QCD can be used to satisfy the required minimum distribution amount that individuals are typically required to take from their IRAs beginning at a certain age.
• Eligible Accounts: Generally, QCDs can only be made from traditional IRAs (including Inherited IRAs), not from employer-sponsored retirement plans such as 401ks.

When the Tax Cut and Jobs Act was passed in 2018, the standard deduction nearly doubled. This along with the State and Local Tax Deduction being capped to $10,000 resulted in a lot of individuals, especially in high tax states, no longer itemizing deductions on their tax returns. Consequently, many individuals who used to receive tax benefits from charitable donations were no longer able to claim these deductions on their tax returns. Qualified Charitable Distributions offer a great opportunity to be charitable, while also lowering your taxable income simultaneously.

In the end, Julie and her mom were delighted her RMD would not push her into a higher tax bracket, and she would be able to support a charity that was near and dear to their heart.