Qualified Charitable Distribution

Qualified Charitable Distribution

Are you over 70.5 years of age and taking Required Minimum Distributions (RMD) from your traditional IRA or 401K?  Then as you know, whatever amounts that are distributed from these retirement accounts are now subject to regular income tax when you file your 1040 tax return.  Would you like to not pay tax on a portion of that distribution?  If so, perform a Qualified Charitable Distribution (QCD).

QCD is a distribution from your retirement account directly (not to your personal checking/savings account) to your favorite charity, for example, St. Max, or charities.  Whatever amount you transfer, up to $100,000 is counted as serving your RMD, but this amount will not be counted as income on your 1040 tax return, thus saving you taxes.

For example, assume you are in the 22% tax bracket (between $78,950 and $168,400 of taxable income for the 2019 tax year).  Also assume that you must take $40,000 out of your IRA/401K to satisfy your RMD.  This will then require you to pay $8,800 in taxes to the IRS ($40,000 x .22).  Also assume you intend to contribute $10,000 to your favorite charity (St. Max, for example) or charities.  You would then contribute this $10,000 from your checkbook or savings.

On the other hand, let’s assume you plan to directly transfer that same $10,000 to your favorite charity (St. Max, for example) or charities.  Then you would be left with only $30,000 of your RMD as taxable.  The tax on this would be $6,600 ($30,000 x .22).  Thus, you would save $2,200 ($8,800 - $6,600) in taxes.  The charities would get the same amount and you have a $2,200 lower tax bill.

Additionally, since your income is lower, it may also lessen the amount of Social Security that is taxed, and it may positively affect your Medicare premiums.

Please consult your IRA/401K custodian to set this up.  And contact your tax advisor about your specific tax situation.

Will these tax savings inspire you to give a little more to St. Max?

 

St. Maximilian Kolbe Church does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. Consult your tax, legal and accounting advisors before engaging in any transaction.

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