Benefits of Qualified Charitable Distributions

A^{ge 70 ½ or over? You now qualify} for making a qualified charitable distribution (QCD) directly from your traditional or inherited IRA up to  $105,000 (indexed for inflation) each year  directly to a charitable organization(s) (other  than to a private foundation or donor advised  fund). If your spouse is at least 70 ½, they  can do the same from their IRA as well. This  also includes a once-in-a lifetime transfer up  to $53,000 in 2024 (indexed for inflation) to  a charitable trust or charitable gift annuity.  QCDs cannot be made from SEP or Simple  IRA accounts. Let’s explore further.  

The primary benefit of a QCD is that the  distribution is not included in your gross  income but will still count toward your annual  required minimum distribution (RMD). If  you have not taken the full amount of your  2024 RMD or have taken the full amount for  this year and still want to make charitable  contributions by yearend, making a QCD  will fulfill your charitable intent without  increasing your income. For 2025, by making  all of your contributions through qualified  charitable distributions, your adjusted  gross income (AGI) will be lower and you will pay less income tax. In all of the above  cases, the alternative would be first to take  the distribution and then make a charitable donation, which of course means that the  distribution would be included in your AGI  and that you are able to itemize deductions.  Keeping AGI lower means lower income taxes  as well as reducing (or not increasing) your  Medicare Part B and D premiums, lowers the  threshold for deducting medical expenses (if  you itemize) and lowers or reduces the 3.8  percent net investment income tax for high  income taxpayers, along with other benefits  that are based on AGI. As you can see, this  is a huge benefit for taxpayers that claim the  standard deduction and are on Medicare,  those that itemize and high-income tax  bracket taxpayers alike. 

The mechanics of making a QCD are  simple. Many IRA administrators can provide  you with a checkbook whereby you simply  write a check to your favorite charity(ies)  such as Jewish Federation of Delaware. Some  also offer online forms to designate where  the funds should be sent. Regardless, the  two things to remember are (1) you cannot  take possession of the funds—they must go directly to the charity and (2) the check must  clear or electronic transfer must be completed  by December 31 or the amount could be  considered a taxable distribution; so don’t  wait until the end of December to make  these contributions.  

As I noted above, a one-time QCD up to  $53,000 (indexed each year for inflation) can  be made to a charitable trust or to a charitable  gift annuity. These vehicles can provide you  with a lifetime stream of income, with the  remainder going to charity.  

For further information on the above and  other giving opportunities, please contact  Gina Kozicki at Gina@ShalomDel.org or  (302) 427-2100. 

JORDON ROSEN, CPA, MST, AEP®  (Distinguished) is a retired Tax Director  at Belfint, Lyons & Shuman and past  president of the National Association of  Estate Planners and Councils. 

This article is for informational purposes  only and should not be construed as legal,  tax, or financial advice. When considering  gift planning strategies, you should always  consult with your own legal and tax  advisors.