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Donating Your RMD Using Charitable Distributions

Donating Your RMD Using Charitable Distributions

March 16, 2022
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Did you know that you can donate all or a portion of your required minimum distribution (RMD) to charity? A qualified charitable distribution (QCD) can help reduce your taxable income while simultaneously contributing toward a worthy cause. If you’re interested in making QCDs a part of your retirement strategy, we outlined the benefits that come with QCDs and how to report them on your taxes below. 

RMDs:

Every year, retirees must withdraw a portion of their savings from their retirement account. The total amount withdrawn is then considered taxable income. Therefore, RMDs can potentially place some retirees into a higher tax bracket. Additionally, RMDs increase the retiree's gross adjusted income, which could cause their medicare surtax and social security to skyrocket. Therefore, for qualifying retirees, QCDs are a solid option to reduce taxable income and avoid the negative outcomes we listed above.  

Rules for qualified distributions: 

To ensure you meet all the IRS’s regulations, please carefully read through the following points for correctly executing a QCD: 

  1. To qualify for a QCD, the retiree must be 70 ½ or older. 
  2. The maximum amount an individual account owner can contribute toward a QCD is $100,000. 
  3. QCDs only apply to taxable distributions. 
  4. Donations must be transferred directly from the retirement account to the charitable organization to be considered a QCD. Otherwise, the QCD will not be considered under the IRS. 

How to report a QCD on your taxes: 

If you’re working with an accountant to file your taxes, make sure you communicate your QCD plan with them. Your accountant must know the details of the donation and your retirement account to ensure the QCD is reported correctly. If you are reporting your own QCD, write the full amount of your QCD under IRA distributions. Then, under the taxable amount, enter zero if you donated your entire RMD to charity. 

Tax Benefits: 

Since a QCD is non-taxable, it can reduce your tax bill and prevent you from having a higher gross adjusted income. However, you must ensure that you follow the IRS’s rules and regulations to reap the benefits. 

If you find yourself in need of professional assistance with donating your RMD, one of our financial experts at U-Vest® can help. We understand the IRS’s regulations regarding QCDs and can help you make the most informed choices with your RMD. Call us today to schedule an appointment with one of our financial advisors to help strategically manage your annual RMD.

This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. Please consult your financial advisor prior to making financial decisions. Dustin Johnson, CFP®, ChFC® is a Financial Advisor with U-Vest Financial®, a separate entity from LPL Financial and can be reached at (727) 343-4200. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.

(3/22)