Support Your Charitable Gifting Plan Using QCDs
Qualified Charitable Distributions (QCD) are a popular way to support charitable causes because they offer a myriad of benefits to the donor:
- Full amount goes to the charity
- QCD amounts go towards satisfying any Required Minimum Distribution (RMD), if applicable
- Income tax savings are generally realized without requiring itemization on personal tax return
QCDs Help offset RMDs and Reduce Income Taxes
Required Minimum Distributions from retirement accounts are reported as income and subject to income tax. However, by gifting a portion, or all, of the RMD directly to charity, the distribution becomes a Qualified Charitable Distribution and becomes income tax free!
RMDs Not Required to Take Advantage of QCDs/Use QCDs to Manage RMDs
RMDs for retirement accounts begin at age 73. But QCDs can be made in the year in which you turn 70 1/2 - meaning even if you don't have an RMD, you can still give to charity via the QCD. In addition, the annual limit on QCDs is $108,000 for 2025 i. So, you can give even MORE than your RMDs!
Because you can gift more than your RMD, up to the annual limit, you can work with your advisor to plan your QCD distributions to reduce your future RMDs. Remember, every dollar distributed today is a dollar you don't have to take in the future. By planning your distributions, you won't get hit later with the "RMD Bomb" - where your RMDs are so large you are pushed into a higher tax bracket.
Get Tax Benefits of Your Gift, Even Without Itemizing
Due to the size of the Standard Deduction, fewer taxpayers itemize deductions when filing their tax return. Since charitable contributions are recorded on Schedule A, many people don't get the income tax benefit of their charitable gift.
The QCD, however, is referred to as an "above the line deduction", meaning the deduction occurs BEFORE applying the Standard Deduction Amount from Schedule A. So, you can take the standard deduction AND STILL GET THE TAX BENEFIT of your charitable gift! ii
QCD Bonus - Help Manage Medicare Premium Levels
In addition to the tax benefits of QCDs, they can also help manage Medicare premium levels. Medicare premiums are means-tested based on your reported income. Social Security benefits, pension income, and traditional pre-tax retirement plan distributions all add to your taxable income and can create higher taxable income, leading to higher Medicare premiums. Qualified Charitable Distributions, however, are not taxable and thus do not create the possibility of higher premiums!
i IRS Notice 2024-80
ii WealthBridge Capital Management does not offer tax advice. Please consult your tax professional for information specific to your situation.