Are you at the age where you must take required distributions from your investments? Did you know if you have a traditional IRA that you can receive tax advantages by making cash donations to an IRS-approved charity through your IRA?
Those who are age 70 ½ or older can transfer up to $100,000 per year to a charity and can avoid paying income taxes on the contribution. This process is known as qualified charitable distribution or QCDs and is limited to IRAs.
The funds that are donated to charity will count towards your required minimum distributions (RMDs), however, they will not increase your adjusted gross income (AGI) or, in other words, create a tax bill.
What are RMDs? This is the amount of money that must be withdrawn from your traditional IRA. For 2023, the age at which you must begin taking RMDs is 73 years of age. Each year the account holder must withdraw the minimum amount based on the current requirement.
Why is it important to keep your charitable contribution from being taxable income? One reason is because it helps you qualify for other tax breaks. You can also avoid certain rules that cause your Social Security benefits or all of your investment income to be taxed.
Not only this, but you will be able to avoid a high-income surcharge for Medicare Part B as well as Part D premiums. Lastly, your charity contributions won’t be subject to federal estate tax and most likely won’t be subject to state death taxes.
If you are interested in benefiting from a QCD for the new year, you will need to arrange the distribution to be paid directly from your IRA account if you’d like to qualify by December 31, 2023.
If you have questions on how to go about making a charitable contribution from your IRA, speak to your investment advisor to assist you.