Over 70 1/2+ With an IRA? IRS Recommends Setting up a Qualified Charitable Distribution Now

Close up of a senior couple dealing with their home finances.
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As the year slowly draws to a close, many retirees will soon be embracing the spirit of giving. The Internal Revenue Service (IRS) is reminding seniors aged over 70 1/2 that if they are making charitable donations this year, they should consider gifting through qualified charitable distributions (QCDs).

Taxpayers older than 70 1/2 can make qualified charitable distributions to minimize their tax liability. QCDs are direct donations made to a qualified public charity from a donor’s traditional IRA. The amount donated, up to an annual maximum of $100,000, is not a deduction but an exclusion from the account holder’s gross income total. Reducing adjusted gross income is the key to receiving other tax breaks like lowering monthly income-based Medicare premiums, for example.

QCDs Can Reduce Your Tax Liability

According to CNBC, some financial experts feel it is the most useful way to donate and decrease your 2022 tax debt.

“For most people, most of the time, you’re going to be better off doing this as your first source of charitable giving,” stated certified financial planner David Foster.

For donors aged 72 or older, the donations may count as required minimum distributions toward the IRA’s requisite annual payout, CNBC noted.

These tax-free, gross income omissions are available to qualified taxpayers whether an IRA account holder itemizes or takes the standard deduction — however, reporting them correctly is important.

Because there is no “special code” or separation between regular retirement plan distributions and QCDs in Box 1 on the IRS Form 1099-R, you will need to enter distribution amounts, charitable or other, in their proper spaces.

Are You Retirement Ready?

“It’s up to you to keep track of how much of that money went directly to charity,” said Foster.

Depending on how much of your total distribution amount is a QCD, you will either enter 0 on Line 4b (if the full distribution amount is a QCD) or the remaining taxable portion on that line.

As the IRS explained on its site, qualified charitable distributions are tax-free “as long as they’re paid directly from the IRA to an eligible charitable organization.” But, as with all charitable contributions, a receipt or written record of a QCD is required before a 2022 tax return is filed. To see what information is required on donation acknowledgments, check out Publication 526’s Acknowledgement section and the Publication 590-B page at IRS.gov.

If you are thinking of making a donation and declaring it as a QCD before the end of 2022, the IRS recommends contacting your IRA administrator soon to ensure the transaction gets completed before Dec. 31, 2022.

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