By Brett Gottlieb

If you’re like many people in retirement, it’s likely that charitable giving is a part of your current financial plan. A qualified charitable distribution, also known as a QCD, can help reduce the taxes you pay on distributions from your IRA accounts and will replace the need for required minimum distributions (RMDs). This strategy will allow you to give to those in need while alleviating your tax burden after you turn 70.

If you’re over the age of 70½ or in the position to take an RMD, read on to learn ways you can combine both your distribution and your contribution to add a boost to your tax savings.

Making a Qualified Charitable Distribution

While cutting out yourself as a middleman saves you a lot of time and administration, that’s not where the greatest benefit of a QCD (qualified charitable distribution) lies. The greatest benefit is actually financial. You can potentially save a lot of money on taxes by distributing funds

directly from your IRA to a charity of your choice, instead of taking it for yourself first. QCDs can be utilized once you reach age 70½, but they become particularly advantageous when you turn 73 and RMDs kick in. Instead of being forced to withdraw funds as part of an RMD, you can choose to distribute these funds to a charity tax-free instead.

Not only is this a great way to give back to causes you care about, but it also helps you reduce your taxable income. When you make a QCD, it is excluded from your taxable income because the amount that you donate never shows up on your tax return. This leaves you with a lower taxable income and, therefore, a lower tax bill. And you don’t even have to itemize your deductions to get this tax break.

Eligibility: Know Your Limits and Requirements

Not all retirement accounts are eligible to use the funds as a QCD. It has to be an IRA that is a traditional, rollover, inherited, inactive SEP, or inactive SIMPLE plan. A SEP or SIMPLE is considered inactive if no employer contribution has been made during the plan year that ends during the tax year that the charitable contribution is made.

In addition to having the right kind of account, these other requirements must be met:

• You must be age 70½ or older.
• To count toward the RMD for the year, the funds must come out of the IRA account by the RMD deadline, which is usually December 31. Excess donations cannot count toward future-year RMDs.
• QCDs cannot be greater than the amount that would otherwise be taxed as ordinary income (excluding non-deductible contributions).
• Total QCDs cannot exceed $100,000 per calendar year per taxpayer, regardless of the number of charities donated to.
• Funds must be distributed directly to the charity. If you take a distribution and then give it to charity, it does not count as a QCD.

Is Your Charity Eligible?

After establishing your own eligibility, you need to make sure that your charity is also eligible to receive a QCD. First, it must be a 501(c)(3) organization that is eligible to receive tax-deductible contributions.

On top of that, there are certain types of organizations that are not eligible to receive QCDs. They are:

• Private foundations
• Supporting organizations (charities that only exist to support other exempt organizations, usually public charities)

• Donor-advised funds managed by public charities on behalf of individuals, families, or organizations

Understand How Qualified Charitable Distributions Are Reported

Unless it is an inherited IRA, QCDs are reported as normal distributions on Form 1099-R. For inherited IRAs, they are reported as death distributions. Though state rules vary, QCDs are not subject to federal tax withholding.

Because it is already tax-free, you may not claim the QCD as a charitable tax deduction. Even though you aren’t claiming it as a deduction, you need the same acknowledgment of the donation that you would need if you were. Keep this in your records in order to document the fact that the QCD was in fact qualified.

We Are Here to Help

If your plan is to give to charity, why not make it a win-win and do it in a way where it will reduce your tax burden? QCDs are a great opportunity for anyone who wants to contribute to charity and is over the age of 70½ or subject to required minimum distributions.

At Comprehensive Advisor, we regularly help clients decide whether a qualified charitable contribution made from their IRAs can help reduce their tax burden. It’s a good idea to work with a knowledgeable financial professional to make sure you make a QCD the right way.

Many specific rules and requirements must be met in order for distributions to qualify for exempt status—but we’re here to help you through that process. If you’d like to partner with a financial planner who strives to help you feel confident in your financial future so you can start living your retirement dream now, reach out to schedule an introductory phone call at (760) 813-2125 or by emailing us at info@ComprehensiveAdvisor.com.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial

solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory services made available through AE Wealth Management, LLC (AEWM). AEWM and Comprehensive Advisor are not affiliated companies. Insurance products are offered through the insurance business Comprehensive Advisor, LLC. Comprehensive Advisor, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by Comprehensive Advisor, LLC are not subject to investment Advisor requirements. C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

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