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Leveraging the Benefit of Your Gifts, Part One

by Rebecca Pace, HUUC Accounts Receivable Treasurer

You may have noticed a change when you filed your 2018 tax return. The standard deduction increased so that many people no longer itemize their deductions. But, you can still get tax savings from your charitable donations without itemizing.

This month I want to highlight a popular method—Qualified Charitable Distributions (QCD). You must be over 70 ½ to use this strategy.

A person over 70 ½ can direct their retirement IRA Required Minimum Distribution (RMD), or a portion of it, to the church and avoid tax on the distribution. The charitable distribution counts toward your required minimum distribution.

Reducing the taxable income this way will reduce your adjusted gross income, which may reduce the tax burden on your social security benefit, possibly lower your Medicare premiums, and reduce your Ohio state income tax. A lower adjusted gross income may also provide other benefits, depending on your individual situation.

Even if you take more from your retirement account than your RMD, you can still reduce the taxable amount by directing some of it to the church.

In order to take advantage of this strategy you must follow these rules.

  1. The check or transfer to the church must come directly from the retirement account. You cannot deposit the retirement money into your personal account and then write a check to the church.
  2. An individual can make a QCD for more than their RMD, but they cannot exclude income of more than $100,000 per person. If you want to withdraw more than your RMD, use the first distribution in the year for the QCD.
  3. Be sure your tax preparer knows you have made the QCD. You will receive a 1099 showing all of your retirement distributions from the account custodian. The QCD may not be identified on the 1099. It is also very helpful to let the church know that you are using this strategy, so it can be noted on your giving statement.
  4. Full disclosure, I’m encouraging donations to the church, but QCDs can be made to most charities.  Gifts to can be made to Heritage Acres and to the Heritage Endowment Fund.
  5. You can’t take a tax deduction for the amount given to the church if you don’t pay tax on the distribution, but when you’re using the standard deduction, that’s irrelevant.

There is no tax advantage to taking a QCD from a Roth IRA.

September 2019.