I want to be sure you are aware of a tax savings strategy that many members of Heritage are using to support our church: Qualified Charitable Distributions or QCDs.
If you are over 70 ½ you can have a distribution from your IRA sent directly to the church, and not pay any tax on the withdrawal. If you are already taking withdrawals from your IRA and making charitable contributions out of your pocket, this method will reduce your Adjusted Gross Income, and your income tax. It may reduce the taxable portion of your Social Security. It also reduces the income that is taxable to the State of Ohio. A simple charitable deduction cannot do all of these things.
If you are over 72, these distributions count towards your Required Minimum Distribution (RMD).
You will get a tax statement from the church, acknowledging your gift. In most cases the statement will indicate if the donation came from your IRA, but it is your responsibility to verify the exclusion limitations and determine if the contribution qualifies as a QCD.
Remember, IRA means “Individual.” The distribution comes from an Individual’s account, not a joint account, so the income exclusion is for the Individual.
QCDs can be made from inherited IRAs. A QCD can come from a Roth IRA, but it would not give you any tax benefit.
There are a few rules to follow. The distribution must be made directly by the trustee of your IRA to the church or other qualifying charitable organization. Not all charities qualify. The maximum that can qualify for a QCD can be more than your RMD, but cannot exceed $100,000 per person. If you contribute to your IRA in the same year you make the distribution, the full amount of the distribution may not be excluded from income. Also, if your IRA includes non-deductible contributions, only a portion of the distribution qualifies for income exclusion.
A QCD is reported, by the custodian, on the annual 1099-R tax statement, like any other IRA withdrawal. The full distribution is reported on your tax return, along with the offsetting exclusion. You can still report the income and take a deduction for a charitable contribution, but using the QCD strategy will probably give you a more generous tax benefit.
Be sure to consult your tax advisor for advice about your specific situation.
Your support of Heritage can be a win all around, for the church and for your pocketbook.
March 23, 2022.