Turn Your RMDs into Charitable Wins with QCDs

As you reach the age where Required Minimum Distributions (RMDs) become mandatory, you might feel the pinch of increased taxable income. But there’s a way to turn this obligation into a benefit for both your finances and the causes you care about: the Qualified Charitable Donation (QCD).

What Are RMDs and Why Do They Matter?

RMDs are the minimum amounts you must withdraw annually from your traditional IRA or other retirement accounts once you hit age 73. While these withdrawals are taxable, they don’t have to be a financial burden. By using a QCD, you can satisfy your RMD requirement while keeping your taxable income lower.

The Power of QCDs

A QCD allows you to transfer up to $100,000 per year directly from your IRA to a qualified charity starting at age 70½. The best part? These donations aren’t counted as taxable income, reducing your tax bill while helping your favorite causes.

How to Make a QCD

1. Ensure Eligibility: You must be at least 70½ years old with a traditional IRA.
2. Pick Your Charity: Choose an IRS-qualified charity (excluding donor-advised funds and private foundations).
3. Direct the Transfer: Instruct your IRA custodian to send the funds directly to the charity.
4. Report Correctly: Note the QCD on your tax return to ensure the income isn’t taxed.

Key Considerations

• Annual Limit: You can donate up to $100,000 annually through a QCD. Married couples can double this amount if both spouses have IRAs.
• No Double Dipping: While you can’t claim a charitable deduction for a QCD, reducing your taxable income is often more beneficial.
• Timing Is Crucial: Ensure your QCD is processed before year-end to count toward your RMD.

Using your RMDs to make QCDs is a smart way to reduce your tax burden while supporting the causes you care about. It’s a win-win strategy that transforms a financial obligation into a meaningful act of generosity. Consult your financial advisor to see how QCDs can fit into your overall retirement plan.