The QCD: Another Way to Lessen Your Tax Burden
Curtis has earned the Life and Health Insurance licensure, has passed the Series 66 examination, and has earned a degree from the University of Nevada, Reno. He has over 20 years of experience in the financial industry, helping others protect, grow and manage their wealth. Curtis helps clients create customized strategies for their portfolios based on their unique financial goals.
THE QCD: ANOTHER WAY TO LESSEN YOUR TAX BURDEN
One thing we talk a lot about is taxes in retirement. We all know that at age 72, if you have money in an IRA, you will have to take a Required Minimum Distribution or RMD. This used to start at age 70 ½ but now it is age 72 according to IRS rules. This is a forced distribution, that you will ultimately pay income tax on. We always want to find ways to be tax efficient and tax smart, so in the past we have written about taking income in a tax efficient manner, Roth Conversions and other ways to mitigate our taxes. Today let’s talk about something that isn’t as well known, the QCD.
So, what is a QCD? A QCD aka a Qualified Charitable Distribution is a distribution that you can start doing at 70 ½ to help minimize your tax burden if you have charitable intent. You can take up to $100,000 out of your IRA and donate directly to a qualified charity of your choice. This will not create a taxable event. We have had clients in the past who had charitable interests and wanted a way to lower their tax burden created by their Required Minimum Distributions and this was one of the most efficient ways to do so. Now remember, RMD’s start at age 72 but to lower your tax burden you can start this at age 70 ½, so you can do a bit more advanced tax planning if you so desire.
There are some rules that must be followed here, I won’t list them all, but it is very important you enlist the help of your Financial Advisor or your CPA before initiating your Qualified Charitable Distribution. There are three major rules to keep in mind here. The first rule is the limit to give is $100,000 in any given calendar year. The second rule is that the distribution must go directly to the charity. This is very important, at no time should you, the individual, take control of these funds. That will cause the distribution to become immediately taxable. Lastly, the charity must be a qualified charitable organization as they define it in the tax code, so you must make sure your charity fits this criterion before initiating the QCD.
Even if you don’t have charitable intent at the top of your list of things that are important to you in retirement, it is important to look at what makes sense for your taxable situation. Would you rather your money go to charity or to the IRS? Having a comprehensive tax strategy in retirement is just as important as having an income and investment plan. Don’t think that just because you are a certain age or because RMD’s have started, that having a tax strategy doesn’t matter. It will matter, especially as taxes go up, or if there is a surviving spouse situation.
A QCD is one of many ways we can look to minimize our taxable burden in retirement. It is important that your team of professionals such as your Financial Advisor and CPA are having these conversations with you, as a tax strategy for and through retirement is one of the most important aspects of retirement. Keep this in mind as our tax brackets revert to their 2017 levels in 2026, so make sure to take advantage of the next three years, unless you think taxes will be lower in the future! Tax planning is one of the aspects that we cover in our Cornerstone Retirement Road Map. If you would like to see what your personalized Road Map looks like, call our office at 775.853.9033 and we can create a plan unique to your financial situation.
Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.