Since the new tax legislation went into effect last year, we have noticed a shift in the way some individuals donate. Instead of simply writing a check to a charity, they are donating directly from their traditional IRA.
You may consider doing the same if you answer ‘yes’ to the following questions:
- Are you charitably inclined?
- Do you have a traditional IRA?
- Are you at least 70 ½ (Required Minimum Distribution Age) when the distribution is made?
A traditional IRA is a tax-deferred pool of money. Each time funds are withdrawn for your annual required distribution, it is an income tax event. If you currently give to charity, you can ask your IRA custodian to send a Qualified Charitable Distribution (QCD) donation directly to the charity. An individual can give up to $100,000 per year to a 501c3 public charity if they are over 70 ½.
This strategy works even if you take the standard deduction. The Tax Cuts and Jobs Act of 2017 raised the standard deduction to $12,000 for individuals or $24,000 for married couples. This resulted in fewer people being able to itemize their tax return for 2018. With the IRA donation strategy, for every dollar you give to charity, it is a dollar-for-dollar reduction of income, subject to the limitation mentioned above. This can also help your Medicare premium because the premium is calculated based on income.
For more details, we encourage you to speak with your tax professional. And if you have any questions please give us a call.
Donating to Charity Directly From Your IRA: Less Money to Uncle Sam While Supporting a Good Cause
By Billie A. Porter
Vice President & Private Wealth Advisor, Trust