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Save taxes by using Qualified Charitable Distributions

Happy Birthday, you turned 70 1/2 and now you are required to start taking money out of your IRA accounts.  The required minimum distributions (RMD) must be taken each year after your 70 ½ birthday.  This rule does not apply to ROTH IRA accounts.

Some retirees who have reached that magical age, might consider a Qualified Charitable Distribution (QCD).  If you are making charitable donations anyway, the QCD is a good way to fulfill your RMD and reduce your tax liability.

You must transfer money from your IRA directly to your church or charity of your choice.  If your RMD is $10,000 and you want to contribute $5,000 to charity, then you do the QCD directly to your charity and take the remaining $5,000 distribution.  You will only be taxed on the $5,000.  This is particularly a good move if you have very few itemized deductions (ie, no mortgage interest) and you will take the standard deduction.  You can take the standard deduction and still get a tax benefit for the charitable donations that you are making.