by Matthew L. Darpel
Qualified charitable distributions (QCDs) provide an opportunity to make a tax-free donation directly to Care Net using your traditional individual retirement account (IRA). If you’re 70-1/2 or older, making QCDs lets you maximize your charitable impact while reducing your taxable income. If you don’t need all the money from your IRA required minimum distribution (RMD), making a charitable gift may be a tax-efficient way to support causes and organizations that are near and dear to your heart.
If you own an IRA, you must take RMDs starting at age 73, whether or not you need the funds. When you take an RMD from an IRA, taxable income is created. The resulting increase in taxable income could push you into a higher tax bracket and may impact your ability to take certain tax deductions and, potentially, taxes on Social Security and Medicare premiums.
While QCDs aren’t eligible for charitable tax deductions, they are not included in your taxable income as other IRA withdrawals are. They do count toward your annual RMD from your IRA. When you use your RMD to make a QCD, your taxable income is reduced dollar for dollar. This approach to charitable giving helps you save on taxes while supporting your philanthropic goals.
Matthew L. Darpel is an investment advisor and attorney with Darpel & Howard Wealth Advisors in Crestview Hills, Ky., and a past president of Care Net’s Board of Directors.