Qualified Charitable Distributions

[Haggar]

Here's an article from the Wall Street Journal about QCD's.
If you're eligible and you give charity an excellent way to reduce taxable income and the Income that may increase your medicare premiums.

[Altavia]

Charitable Gift Annuities are another option.

What is a Charitable Gift Annuity? | Fidelity Charitable (https://www.fidelitycharitable.org/guidance/philanthropy/charitable-gift-annuity.html)

[Boomer]

Thank you, Haggar, for that article.

The first year I did this, I filled out the form and had Fidelity write the check to the charity and then send it to me, and I then sent it to the charity, after making a copy, and got the acknowledgement for tax time.That probably sounds like a bit of a rigmarole to some, but it really wasn’t.

Then I learned that I could use an IRA checking account with Fidelity for the QCD, as long as all the rules are followed and good records kept. (Either way, you need to keep your own records, of course.)

For those who give to charity anyway, it seems silly to not use the QCD as part of the RMD. It is not that complicated.

I have wondered if financial advisors, in general, make their clients aware of this way to save on taxes and maybe to avoid IRMAA. And if not, why not? I know most advisors are not tax accountants, but they should at least give clients a heads-up to learn about the QCD.

Boomer

[manaboutown]

Just received my IRMAA notice from Soc. Sec. today. It ain't pretty. Do what you can to avoid IRMAA if possible.

[dewilson58]

Just received my IRMAA notice from Soc. Sec. today. It ain't pretty.

That's the bad news as a result of good news.

[Boomer]

Just received my IRMAA notice from Soc. Sec. today. It ain't pretty. Do what you can to avoid IRMAA if possible.


Well, manaboutown, you could get married and file jointly to get a whole lot more room between you and IRMAA. ;)

Boomer

[Pugchief]

Well, manaboutown, you could get married and file jointly to get a whole lot more room between you and IRMAA. ;)

Boomer

LOL. Save money on the front end to possibly lose way more on the back end? Vegas oddsmakers would advise you otherwise.

[manaboutown]

Well, manaboutown, you could get married and file jointly to get a whole lot more room between you and IRMAA. ;)

Boomer

I wish. IRMAA in my case is maxed out in part due to LTCGs on assets held roughly 40 years as I am trying to simplify my life by selling off commercial rental properties, one per year. If she were not already there it would just throw my new wife into IRMAA's and NIIT's jaws along with me.

[Priebehouse]

Here's an article from the Wall Street Journal about QCD's.
If you're eligible and you give charity an excellent way to reduce taxable income and the Income that may increase your medicare premiums.

I haven't had the AGI to itemize in 10 years or more! :bigbow:

[crash]

Here's an article from the Wall Street Journal about QCD's.
If you're eligible and you give charity an excellent way to reduce taxable income and the Income that may increase your medicare premiums.

Good info thanks.

[Haggar]

Thank you, Haggar, for that article.

The first year I did this, I filled out the form and had Fidelity write the check to the charity and then send it to me, and I then sent it to the charity, after making a copy, and got the acknowledgement for tax time.That probably sounds like a bit of a rigmarole to some, but it really wasn’t.

Then I learned that I could use an IRA checking account with Fidelity for the QCD, as long as all the rules are followed and good records kept. (Either way, you need to keep your own records, of course.)

For those who give to charity anyway, it seems silly to not use the QCD as part of the RMD. It is not that complicated.

I have wondered if financial advisors, in general, make their clients aware of this way to save on taxes and maybe to avoid IRMAA. And if not, why not? I know most advisors are not tax accountants, but they should at least give clients a heads-up to learn about the QCD.

Boomer

The answer is no. My advisor who is my client and who has referred many clients does not - to the best of my knowledge. I gave to seven charities through QCDs and she had to prepare seven forms to get my seven checks. They claimed she doesn't have any clients QCDs apply to but I suspect she doesn't want the extra work.

[Boomer]

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I have wondered if financial advisors, in general, make their clients aware of this way to save on taxes and maybe to avoid IRMAA. And if not, why not? I know most advisors are not tax accountants, but they should at least give clients a heads-up to learn about the QCD.

Boomer



The answer is no. My advisor who is my client and who has referred many clients does not - to the best of my knowledge. I gave to seven charities through QCDs and she had to prepare seven forms to get my seven checks. They claimed she doesn't have any clients QCDs apply to but I suspect she doesn't want the extra work.

Hi Haggar,

I think you’re exactly right.

Add to that — not telling the client could create an opportunity for the “advisor” to “advise” to reinvest the money in a taxable account that would remain under “advisement.”

Yep. Just whose best interest is that kind of omission in, anyway. (That was a rhetorical question, of course, but it’s the kind of thing that always brings me full circle back to my jaded view of most advisors. )

We do not yet use an advisor, but I did find one that has a CPA as part of their small team and takes a faceted approach to include tax-planning. (They are in my hometown though.)

We have not hired them, so far. Meanwhile, we just plug along — but our taxes are done by a CPA.

Boomer

[jeepjim]

My advisor did present qualified charitable contributions as an efficient way to give to charities. Unfortunately Charlie Swab(not the real name) sent out the checks as directed to my three charities and then a short time latter they sent out three more checks to those charities from my account without my authorization! It has been a nightmare. Wish me luck at tax time.

QCD are a good tool but can be a problem

[LuvtheVillages]

I haven't had the AGI to itemize in 10 years or more! :bigbow:

When using a Qualified Charitable Distribution, the money goes directly to the charity AND counts as part of your Required Minimum Distribution. However, (here’s the important part) it is NOT included in your taxable income, like the RMD usually is.
No need to itemize to get the benefit.

[Aces4]

Here's an article from the Wall Street Journal about QCD's.
If you're eligible and you give charity an excellent way to reduce taxable income and the Income that may increase your medicare premiums.


I must be missing something... it's important not to pay $4,000. premium for Medicare insurance when your joint income is over $246,000 a year? What a burden! But I guess it's important to fleece the younger generation for one's costs.

I think I'll go wash my socks and underwear.

[Haggar]

When using a Qualified Charitable Distribution, the money goes directly to the charity AND counts as part of your Required Minimum Distribution. However, (here’s the important part) it is NOT included in your taxable income, like the RMD usually is.
No need to itemize to get the benefit.
of the RMD.

Important to recognize the 1099-R is your total RMD including QCDs. The QCDs must be entered on a separate line to reduce the taxable amount

[BrianL99]

I wish. IRMAA in my case is maxed out in part due to LTCGs on assets held roughly 40 years as I am trying to simplify my life by selling off commercial rental properties, one per year. If she were not already there it would just throw my new wife into IRMAA's and NIIT's jaws along with me.

IRMAA is a nasty business. All my life I looked forward to my "free medicare", only to find out that my FREE Medicare, costs me $500/Month. I finally got out from under it and then sold some properties the next (not knowing Capital Gains affected IRMAA) and now I'm back to getting whacked.

This is a fairly good explanation and if you figure out a way out of it, let me know. IRMAA is based on your income 2 years ago. They're pretty good at notifying you of changes, either plus or minus. The entire "Appeal Process"? Good luck with that!

https://www.yourmedicaremarketplace.net/blog/b/how-your-income-limit-affect-your-2023-medicare-premiums-and-costs

[Boomer]

I must be missing something... it's important not to pay $4,000. premium for Medicare insurance when your joint income is over $246,000 a year? What a burden! But I guess it's important to fleece the younger generation for one's costs.

I think I'll go wash my socks and underwear.



As you said — you must be missing something……….maybe this will help………

I just read that in 2024 IRMAA will kick in at $103,000 MAGI for a single filer and $206,000 for married filing jointly. (Based on 2022)

The tax law changes of 2017 resulted in fewer people itemizing; therefore, fewer taxpayers get the charitable deduction.

What a QCD does is give those of the required age and who have IRAs the opportunity to give a donation to a qualified charity, a 501(c)(3), and to not have the amount of the donation added to the AGI — when following the specific rules for a QCD. (This cannot be done willy-nilly. The correct steps must be taken. It’s not difficult. But a lot of people don’t know about it.)

I don’t think QCDs are intended to “fleece the younger generation for one’s costs” — like you said.

The QCD can help with one’s Medicare costs, but one does not get to keep the money. It has to be given to charity.

Being aware of IRMAA can be important because once IRMAA’s thresholds are crossed, Medicare costs increase. IRMAA takes no prisoners. IRMAA is an either/or. No percentages like brackets use. IRMAA can be a surprise to those who have been unaware and then that increase shows up 2 years after the AGI crosses the threshold.

Understanding the QCD can present a choice to give to charity and get a tax benefit when using the standard deduction. Nothing selfish about that.

You’re welcome.

Boomer

[Altavia]

As you said — you must be missing something……….maybe this will help………

I just read that in 2024 IRMAA will kick in at $103,000 MAGI for a single filer and $206,000 for married filing jointly. (Based on 2022)

The tax law changes of 2017 resulted in fewer people itemizing; therefore, fewer taxpayers get the charitable deduction.

What a QCD does is give those of the required age and who have IRAs the opportunity to give a donation to a qualified charity, a 501(c)(3), and to not have the amount of the donation added to the AGI — when following the specific rules for a QCD. (This cannot be done willy-nilly. The correct steps must be taken. It’s not difficult. But a lot of people don’t know about it.)

I don’t think QCDs are intended to “fleece the younger generation for one’s costs” — like you said.

The QCD can help with one’s Medicare costs, but one does not get to keep the money. It has to be given to charity.

Being aware of IRMAA can be important because once IRMAA’s thresholds are crossed, Medicare costs increase. IRMAA takes no prisoners. IRMAA is an either/or. No percentages like brackets use. IRMAA can be a surprise to those who have been unaware and then that increase shows up 2 years after the AGI crosses the threshold.

Understanding the QCD can present a choice to give to charity and get a tax benefit when using the standard deduction. Nothing selfish about that.

You’re welcome.

Boomer

Nice synthesis - thanks!

[Boomer]

I cannot get the WSJ article linked in the first post here to open now, but I read it when it was first posted and although it had good info, I found one part to be confusing.

Anyway, the part I did not get was about the timing. The WSJ writer was warning about the "first dollars out rule," but her example was not clear to me, so I went on a search that resulted in my concluding that she must have been talking about recharacterization not being allowed, but she did not use that word 'recharacterization.' I am guessing from an article I found that's what she meant???

Below I am sharing, via cut and paste, a part of that different article, titled "Clearing Up QCD Confusion," found on the Morningstar site. The writer of this article is Christine Benz who is Morningstar's Director of Personal Finance, along with a long list of other accomplishments. I have seen her interviewed by Consuelo Mack on WealthTrack.

If you want to know more, you can find the entire article with a Google. Meanwhile, here's the part about timing the QCD..........

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Timing Matters
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For starters, there's no "grace period" for doing a QCD. In contrast with IRA contributions, which can be made up until the tax-filing deadline, typically in mid-April, you couldn't do a QCD in mid-April 2021 and expect it to count on your 2020 tax return.

Additionally, an RMD, once taken, can't retroactively be classified as a QCD, according to Slott. For example, let's say that a 74-year-old needs to take a $22,000 required minimum distribution from his traditional IRA for 2021. He likes to take his RMD early in the year so he won't forget, so he took his $22,000 RMD in March. If, later on this year, he's thinking about charitable contributions and would like to do a QCD, he can't recharacterize his early-year withdrawal as a QCD. Rather, because of what's called the "first dollars out" rule, which holds that the first dollars pulled out of an IRA by RMD-subject investors are applied to satisfy RMD amounts, that early-year withdrawal will count as his RMD and affect his adjusted gross income accordingly. He can still do a QCD later that year, by steering additional funds from his account to charity (more on contributions in excess of RMDs below), but that amount would be on top of the amount he already withdrew to satisfy his RMDs. In other words, if his goal was to align his RMD with the QCD, he blew it.

Because of that "first dollars out" rule, Slott and other tax experts urge RMD-subject IRA holders to strategize about QCDs and RMDs at the beginning of each year, before withdrawing any funds from the IRA.


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Boomer