Marc hebert’s money $ense tax-efficient charitable giving in an era of less itemizing new hampshire gas law questions and answers

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For example, the bill eliminates or cuts back many itemized deductions, while increasing the standard deduction that taxpayers can take. Charitable contributions are an itemized deduction, and, as a result of these changes, fewer people will receive a tax benefit for gifting to charities. However, there are planning opportunities still around allowing you to be tax efficient with your philanthropic endeavors.

One opportunity available if you are age 70½ or older is to fund charitable donations through qualified charitable distributions (QCDs). So just what are QCDs? These are distributions transferred directly from your IRA to a qualifying charity.

The distribution is not included in your income and provides the additional benefit of helping offset your required minimum distribution (RMD). The distribution check cannot be made payable to the IRA owner and must be made payable directly to the charity. The IRA owner can have the check made payable to the charity sent to him or herself to give to the charity.

It is important to note the IRA owner must actually be age 70 1/2 or older on the date of distribution, not merely turning 70½ sometime during the year. Even a beneficiary of an inherited IRA can be eligible for a QCD; however, the beneficiary has to meet the same rule and be at least age 70½ on the date of distribution.

Eligible QCD distributions are those from an individual IRA. This is true even if the IRA includes funds rolled over from other plans. QCDs cannot be made from SEP and Simple IRAs if they are receiving ongoing employer contributions. QCDs cannot be made from any type of employer retirement plan. QCDs can be made from Roth IRAs. If certain rules are met, the Roth IRA distribution would be tax-free anyway, thus eliminating one of the benefits of doing a QCD.

In exchange for not including the QCD in income, there is no tax deduction for the contribution. This gets back to our point in the first paragraph – as more taxpayers will not itemize, the fact that there is no charitable deduction for QCDs doesn’t really impact these individuals. In order for the QCD to count as one the charitable distribution must have been one that would have been eligible for a full charitable deduction if the taxpayer had itemized and deducted the contribution. This means the IRA donor cannot have received any benefits from the donation.

QCDs can satisfy part or all of your annual required minimum distributions (RMD) and can total up to $100,000 per year. This annual limitation is on a per taxpayer basis and includes all QCD distributions done, even if they are from multiple IRAs.

Given this tax strategy, it is best to ensure your RMD is not processed until your charitable intentions are satisfied. If you intend on gifting to an individual charity consider contacting your tax adviser to review the logistics of processing a QCD and whether or not it is an appropriate strategy for you.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at mhebert@harborgroup.com. Your question and his response might appear in a future column.