Donate via your IRA
With the larger standard deduction amounts beginning this year, many people could lose the tax benefit of making charitable contributions. To reduce tax liability, certain taxpayers could use a qualified charitable distribution (QCD).
A QCD allows anyone age 70½ or older to donate up to $100,000 annually from their IRA account directly to one or more charitable organizations without the distribution counting as income. In addition, if a spouse qualifies, he or she could also make another QCD up to $100,000 from his or her own IRA. It’s imperative that the distribution goes directly to the charity and not to the taxpayer; otherwise, it will be taxable.
The charity must be a §501(c)(3) organization eligible to receive tax-deductible contributions. Private foundations, supporting organizations and donor-advised funds do not qualify. Also, when making a QCD, you must receive the same type of acknowledgment of the donation that you would need to claim a deduction for a charitable contribution. However, since a QCD is not taxable, it is not deductible as a charitable contribution.
Any money you transfer to charity in this manner will reduce the amount you must take in required distributions for the year. The best part is that this charitable giving strategy will reduce your AGI, which could, in turn, lower the amount of any Social Security income subject to income tax! The QCD could also decrease the amount of your Medicare premiums for the following year.
Since Roth IRAs do not require minimum distributions during your lifetime, and their distributions are generally tax-free, it is generally not advisable to make a QCD from a Roth IRA.
Currently, your IRA custodian is not required to specifically identify the QCD on your annual Form 1099-R. Make sure you inform me if you take advantage of this tax saving strategy to ensure it is properly reported on your tax return.