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Certain Charitable Donations Allow You to Avoid Taxable IRA Withdrawals
If you’re a philanthropic individual who is also obligated to take required minimum distributions (RMDs) from a traditional IRA, you may want to consider a tax-saving strategy. It involves making a qualified charitable distribution (QCD).
Keeping the donation amount out of your AGI may be important for several reasons. When distributions are taken directly out of traditional IRAs, federal income tax of up to 37% in 2024 will have to be paid. State income taxes may also be owed. That tax is avoided with a QCD. Here are some other potential benefits of a QCD:
At Maner Wealth, we specialize in guiding individuals through tax-efficient strategies like QCDs to maximize charitable giving while minimizing tax implications. Our team ensures that you can navigate the complexities of RMDs and tax planning with confidence and help in avoiding unnecessary liabilities. Contact us at maner@manercpa.com or call 517-323-7500, to see how we can help optimize your charitable contributions and financial goals.
How it works
To reap the possible tax advantages of a QCD, you make a cash donation to an IRS-approved charity out of your IRA. This method of transferring IRA assets to charity leverages the QCD provision that allows IRA owners who are age 70½ or older to direct up to $105,000 of their IRA distributions to charity in 2024. (For married couples, each spouse can make QCDs for a possible total of $210,000.) When making QCDs, the money given to charity counts toward your RMDs but doesn’t increase your adjusted gross income (AGI) or generate a tax bill.
Keeping the donation amount out of your AGI may be important for several reasons. When distributions are taken directly out of traditional IRAs, federal income tax of up to 37% in 2024 will have to be paid. State income taxes may also be owed. That tax is avoided with a QCD. Here are some other potential benefits of a QCD:
- It can help you qualify for other tax breaks. For example, having a lower AGI can reduce the threshold for itemizers who can deduct medical expenses, which are only deductible to the extent they exceed 7.5% of AGI.
- You can avoid rules that can cause some or all of your Social Security benefits to be taxed, and some or all of your investment income to be hit with the 3.8% net investment income tax.
- It can help you avoid a high-income surcharge for Medicare Part B and Part D premiums, which kick in if AGI is over certain levels.
© 2024
At Maner Wealth, we specialize in guiding individuals through tax-efficient strategies like QCDs to maximize charitable giving while minimizing tax implications. Our team ensures that you can navigate the complexities of RMDs and tax planning with confidence and help in avoiding unnecessary liabilities. Contact us at maner@manercpa.com or call 517-323-7500, to see how we can help optimize your charitable contributions and financial goals.
The materials provided in the News & Insights section are for general informational purposes only and may not reflect the most current legal, tax, or financial developments. While we strive to ensure accuracy at the time of publication, Maner Costerisan does not guarantee that the information remains up-to-date or free from error. We recommend consulting directly with a Maner Costerisan team member to confirm the applicability and relevance of any information to your specific situation.