Thanks to the Tax Cut and Jobs Act’s higher standard deduction, fewer taxpayers are itemizing on their tax returns. A negative side effect is that taxpayers are unable to utilize the deduction for donations made to a qualified charity. One way around this situation is with a qualified charitable distribution (QCD).
Taxpayers age 70 ½ and older can make a qualified charitable distribution from an IRA by donating up to $100,000 annually directly to an eligible charity without counting the distribution as taxable income. The result is lower taxes for people who cannot itemize anymore. Another benefit of the QCD is that it can help keep your Medicare premiums lower because it lowers your taxable income, which is the figure used to determine the cost of your Medicare premiums.
Up until recently, QCDs were used by many retirees as a way to offset required minimum distributions (RMD) at age 70 ½. The SECURE Act was recently signed into law in December increasing the age from 70 ½ to 72 for RMDs. Fortunately, the SECURE Act made no change to the age at which a taxpayer may use their IRA to make QCDs. Therefore, even if you turn 70 ½ in 2020 and don’t have to take an RMD, you can still use your IRA for a qualified charitable distribution. If you would like to learn more about how QCDs fit into your financial plan contact our office today.