How to exempt your IRA required minimum distributions (RMDs) from taxation
A Qualified Charitable Distribution (QCD) allows Traditional IRA owners or beneficiaries to not only reduce taxes, but also to provide support for the qualified charity of their choice.
A QCD can be used to satisfy the IRA RMDs for those who do not need the money for expenses or other purposes. Unlike an RMD, the charitable distribution is not included in your adjusted gross income. This reduction of your adjusted gross income is significant as it may place you in a lower tax bracket, reduce or eliminate your Social Security taxation, reduce Medicare surtax and premium costs, and allow eligibility for other deductions and credits that may not have been available had you been forced to include the RMD as income.
There are eligibility rules that include age limits (you must be 70½), charitable contributions are limited to $100,000 per person(this amount will increase to $105,000 for 2024), and distributions must be made directly from the IRA custodian to the qualified charity. Additionally, the charity must be a 501(c)(3) organization. Of course, you can make charitable contributions greater than $100,000 or outside of a QCD, but those contributions will not reduce your adjusted gross income.
Note that a QCD can be executed at any time but December 31 is the deadline in the year for which you want to fund the contribution using your RMD.
Learn about the SECURE 2.0 Act of 2022 that allows you to make a one-time distribution from your IRA—up to $50,000* of your annual Qualified Charitable Distribution limit (QCD)—into a Charitable Gift Annuity.**
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This information is not legal or tax advice. Information is from sources deemed reliable. Information is subject to error, omission, withdrawal, or change. Contact your own legal or tax advisor before taking any action that would have a legal or tax consequence.
*Indexed annually for inflation
**Also available for Charitable Remainder Unitrust (CRUT) or Charitable
Remainder Annuity Trust (CRAT)
Restrictions apply
