If you are retired and make financial gifts to charity, experts say Qualified Charitable Distributions (QCDs) can minimize taxes while supporting your favorite causes.
As long as you have a traditional Individual Retirement Account (IRA) or 401(k), you have to take the required minimum distributions (RMD) once you reach age 72. Provided that you don’t need funds from the RMD for living expenses, you may choose to use a QCD as a way of lowering your taxes while benefiting a charity.
There are two ways you can make a charitable donation from your IRA. Accept a distribution and then donate the money to a charity, increasing your total taxable income. Or, you could instruct your IRA administrator to make a distribution directly to a qualified charity. This way, you satisfy your RMD without adding to your taxable income.
By making your charitable contribution via a QCD you may increase certain tax credits and deductions, reduce the taxable amount of Social Security, lower future Medicare premiums, and decrease your tax rate on capital gains.
If you want to learn more about QCD’s and their potential to minimize taxes, please consult with your tax advisor.