Follow
the rules, and you might get a big federal tax break.
Is your annual IRA withdrawal a bother? If you are an affluent retiree, that might be the
case. The income is always nice, but the taxes that come with it? Not so much.
If only you could satisfy your yearly IRA withdrawal requirement minus
the attached taxes. Guess what: there might be a way.
If you gift traditional IRA assets to
charity, you could see some big tax savings. The Internal Revenue Service calls this a Qualified Charitable
Distribution (QCD), and you may want to explore its potential. Some criteria must be met: you need to
be at least 70½ years old in the year of the donation, the donation
must take the form of a direct transfer of assets from the IRA custodian to the
charity, and the charity must be “qualified” in the eyes of the I.R.S. Any
501(c)(3) non-profit organization meets the I.R.S. qualification, as do houses
of worship.1
The amount you gift can be applied toward your Required Minimum Distribution
(RMD) for the year, and you may exclude it from your taxable income. If you are
retired and well-to-do, a charitable IRA gift could be a highly tax-efficient
move.1,2
Just how much could you save? That depends on two factors: how much you gift, and
your federal income tax bracket. As an example, say you are in the 35% federal
income tax bracket, and you donate $40,000 from your traditional IRA to a
501(c)(3) non-profit organization. That $40,000 will be gone from your taxable
income, and the donation will cut your federal tax bill for the year by $14,000
(as 35% of $40,000 is $14,000). Yes, the savings could be significant.2
You can donate as much as $100,000 to a qualified charity this way in a
single year. That limit is per IRA owner; if you are married, and you and your
spouse both have traditional IRAs, you can each donate up to $100,000.1,2
What about the fine print? There is plenty of that, and it is all worth reading. You may be curious if you can make a
QCD from a SIMPLE or SEP-IRA; the answer is no. You can make a QCD from a Roth
IRA, but there is little point in it: Roth IRA withdrawals are commonly
tax-free.1
Regarding the asset transfer, the critical detail is that you cannot
touch the money. The distribution must be payable directly to the non-profit
organization or charity, not to you. (Income tax does not need to be withheld
from the distribution since the amount withdrawn will not count as taxable
income.) In addition, your tax preparer must identify the distribution as a QCD
on your federal tax return. This is crucial and must not be overlooked, because
the custodian of your IRA will probably report your QCD as a normal IRA
distribution.2
If you itemize your deductions, you should know that a
charitable IRA gift does not count as a deductible charitable contribution.
(That would amount to a double tax break.) Of course, fewer taxpayers have
incentive to itemize now, since the standard deduction is so large, thanks to
the Tax Cuts & Jobs Act.1,2
If you want to make a charitable IRA
gift, start the process before the year ends. If you try to make the gift in late December, your IRA
custodian might not be able to move fast enough for you, and the asset transfer
may occur later than you would like (i.e., after December 31). Talk with a tax
or financial professional before the year ends, so that you can plan a
charitable IRA donation with some time to spare.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates.
This information has been derived from sources believed to be accurate. Please
note - investing involves risk, and past performance is no guarantee of future
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construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC,
a registered broker/dealer and investment advisor. CBSI is under
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Citations.
1 - thebalance.com/qualified-charitable-distributions-3192883
[1/15/18]
2 - marketwatch.com/story/how-retirees-can-save-on-charitable-donations-under-the-new-tax-bill-2018-03-02
[3/2/18]
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