There are several magical ages as you reach your ‘senior years’:
- AARP declares you are a senior at age 50 with their invitation to join their organization.
- At 59.5 you can take money from your retirement accounts without the 10% early distribution penalty.
- At 65 you are eligible for Medicare and greatly reduced insurance premiums.
- 70.5 is when you are allowed to make Qualified Charitable Distributions (QCD) from your IRA account.
Qualified Charitable Distributions are a distribution from an IRA that goes to directly to a qualifying charity. It is not included in your taxable income. You do not have to itemize deductions on your tax return to benefit from the QCD’s.
While QCD’s are an effective tool, you do need to follow the guidelines.
- A QCD can be made from IRA’s, inactive SEP, or SIMPLE IRA. A QCD cannot be made from an employer plan such as a 401(k).
- The IRA owners must be actually 70.5 when the contribution is made. Both spouses are eligible to make QCD’s from their own IRA’s.
- Distributions must be made directly to the charities. A check payable to the charity but sent to the IRA owner will qualify as a QCD. However, a check made payable to the IRA owner, who then pays the funds to a charity, is not considered a QCD. A donor advised fund or private foundation are not eligible charities for QCDs.
- The maximum contribution allowed in 2024 is $105,000. (This value is indexed for inflation.) If you contribute more than the maximum allowed for QCD to charities from your IRA, the excess will be taxable income.
- Required Minimum Distributions (RMD) now begin at age 73. QCD’s can be used to meet the RMD requirements.
- The IRA custodian has no special tax reporting for a QCD. The QCD will be reported on form 1099R as a regular distribution. The IRA owner reports the QCD on his tax return. The amount is excluded from the owner’s taxable income. (Be sure your tax preparer knows your charitable contributions are QCD’s) The IRA owner cannot also take an itemized deduction for the QCD amount.
- The QCD reduces your Adjusted Gross Income (AGI). As a result, it could reduce your Medicare premium and income taxes.
If you are charitably inclined, Qualified Charitable Distributions can be an effective tool when used correctly.
Disclosure:
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Boise Retirement Coach and Cambridge are not affiliated.
Cambridge does not offer tax or legal advice.