Tax Planning and Qualified Charitable Distributions

Video Transcript

Hi folks, Ron Dickinson, CPA and Certified Financial Planner®.

This video is for anyone over the age 70 and a half, or those who might be in a few years. There’s a little known tax law that in 2018 is going to be very important. Why is that?

Well, under the new tax law, the standard deduction for retirees – those 65 and older that are married – is $26,500, and $13,250 for singles. Now, that is about double what it was under the prior law.

Less and less people will be able to itemize, and less and less people will get any benefit from charitable deductions. But this tax rule that’s not very well known, but has been on the books for several years, is suddenly very important. It’s called the Qualified Charitable Distribution.

It means you can transfer money directly from your IRA to the charity of your choice – and you will not have to pay taxes on your IRA withdrawal when you do that. Let me repeat that. You will not pay taxes on the IRA withdrawal that goes directly to a charity.

You don’t receive a charitable deduction, but if you are using the standard deduction this really doesn’t matter. So it’s important to note that you cannot take the cash out of your IRA and put in the bank and then write a check to your charity. That won’t work. Your IRA in that case would be taxable. It has to be transferred directly from your IRA to the charity.

So, how do you do this? You simply call our office and we complete paperwork for you. Your charity of choice will receive a check with your name on it. And as a bonus, the charity transfer counts toward your required minimum distribution for the year.

In summary, you pay no tax on your IRA withdrawal, your RMD is partially satisfied, and you can end up taking the standard deduction anyway. So, if you are inclined to make charitable contributions and you have an IRA, this is a must-know rule.

I hope this helps you in your tax planning. Thanks.

 

[Financial Planning and Investment Management Services offered through Dickinson Investment Advisors, Registered Investment Advisor. Statistics and market information provided by Litman Gregory Advisor Intelligence.]

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