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TAXES | Timing Your Qualified Charitable Distributions

You likely know about the benefits of Qualified Charitable Distributions (QCD) before, but a quick review is helpful.

At the age of 70 ½, the Federal Government requires investors to make withdrawals from their retirement accounts including IRA’s, 401(k)’s, and the like. These forced withdrawals are called Required Minimum Distributions (RMD). RMD’s increase a taxpayer’s Adjusted Gross Income (AGI) and is therefore taxed at the taxpayer’s marginal, or highest tax rate.

Current tax code allows individuals who are at least 70 ½ years old to make up to $100,000 of charitable contributions from their retirement accounts in lieu taking that amount as an RMD. QCD’s reduce the amount of RMD, which reduces the AGI, and therefore reduces the amount of taxes due.

However, the timing of your QCD vs. RMD is important. RMD’s made before a QCD will be treated as income and taxed accordingly. A taxpayer cannot offset an RMD received with a QCD made later. If your total RMD is significantly higher than $100,000, or if your intended QCD is significantly lower than $100,000, timing will not be as much of a concern. However, to be safe, for charitably-minded clients who are over 70 ½ years old, we strongly recommend they make their QCD’s first and then take the balance of their RMD’s any time before December 31st.

As always, please consult with your tax advisor to determine how these opportunities affect your personal circumstances.

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