You Can Reduce Taxable Income and Meet Required Minimum Distributions (RMDs) with Qualified Charitable Distributions (QCDs)
They say there are only two things in life you can’t escape: death and taxes. But did you know there’s a way you can escape taxation of your IRA earnings? It’s a smart way to make the most impact with your assets.
Contributions to your traditional IRA grow tax-deferred; but when you eventually withdraw the money it’s taxed as ordinary income. Once you reach age 70 ½ the IRS mandates a certain level of Required Minimum Distributions (RMD) which are subject to income taxes. Even IRAs passed on to heirs are subject to these income taxes. Today the highest federal income tax bracket is 37%, on top of which state income taxes could apply.
SO HOW CAN YOU AVOID TAXATION OF IRA DISTRIBUTIONS?
If you’re over 70 ½ you can make a donation directly from your IRA through a “qualified charitable distribution” (QCD). The transfer does not affect your taxable income, does not require you to itemize deductions, and it can satisfy all or part of your required minimum distribution. It’s a win-win. You enjoy the benefit of watching your funds make positive change in your community, tax-free!
If you’re under 70 ½ but over 59 ½ and looking for a way to boost your impact, you can still give directly through your IRA. The amount will be taxed as regular income, but you can claim the donation if you itemize deductions.
CONSIDER TAX IMPLICATIONS FOR BENEFICIARIES
Not all assets are equal when it comes to the taxes your heirs will incur. IRA funds left to heirs are typically taxed as income, which means they could owe taxes of up to 37% of your gift! Many people prefer to give family assets taxed at lower rates, and use their IRA to fund charitable giving. IRA funds left to a tax-exempt organization like Children’s Center incur no tax at all.
The information contained herein should not be construed as tax advice or legal advice. Prior to making any major change in your estate or executing a strategy regarding taxable investments and charitable contributions you should check with your tax and legal consultants.