Senior Taxpayers, take note…

Qualified Charitable Distribution, which survived the Tax Cuts and Jobs Act of 2017 (TCJA), may be even more valuable now to taxpayers over age 70½.

According to the TCJA, they must now take required minimum distributions (RMDs) from their tax-deferred retirement savings accounts, the proceeds of which are taxable by the federal government.

There is a loophole, however, to having to pay those taxes.  Taxpayers who want to minimize their taxable income are allowed to make charitable contributions with those distributions directly from their retirement accounts to qualified tax-exempt organizations, and avoid paying taxes on the RMDs.

The TCJA sets the standard deduction at $24,000 (for married taxpayers filing jointly). Taxpayers aged 65 and older are allowed an additional standard deduction of $1,300 per individual, or $2,600 for those who are married filing jointly.

To the extent that a taxpayer makes a Qualified Charitable Distribution over the amount of the standard deduction – $26,600 for a married couple filing jointly – the taxpayer may also reduce his or her tax liability on any Social Security income. For taxpayers who have lost valuable tax deductions in the TCJA, such as the reduced deductibility of home mortgage interest and state/local taxes, the Qualified Charitable Distribution can provide a valuable tool for minimizing taxable income.

In order to qualify as a Qualified Charitable Distribution, the distribution must:

  • be made directly from the retirement account to the qualified charity, and
  • be made to an organization that is tax-exempt as a 501(c)(3) entity.

Qualified Charitable Distributions may be made in amounts up to $100,000 annually.

It’s important to note that a taxpayer who makes a Qualified Charitable Distribution over the amount of the standard deduction is not eligible to deduct it as a charitable contribution…you must pick one or the other.

If you have questions about setting up a Qualified Charitable Distribution, please contact us.