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As we look to the end of 2021 (and hopefully a sense of normalcy), many of us start thinking about holidays, family gatherings, and year-end tax planning. I thought that I would share an idea that may be useful to many of our members, especially those approaching or over the age of 70½.

A Qualified Charitable Distribution (QCD) is a tax-efficient way to make charitable donations. It’s a direct transfer from an Individual Retirement Account (IRA) to a charity, such as First Church, and it’s available only to IRA owners (and IRA beneficiaries) who are age 70½ or older. QCDs can be taken out of your traditional IRAs free of any federal income tax.

With the recent tax law changes, many of you who previously itemized deductions now find it advantageous to take the standard deduction instead. As a result, you no longer deduct your charitable contributions, but via a QCD, some can still make those contributions with pretax dollars, resulting in significant tax savings. Unlike typical charitable donations, you can’t claim itemized deductions for QCDs. That’s OK because the tax-free treatment of QCDs equates to a 100% deduction as you’ll never be taxed on those amounts. In addition, you don’t have to worry about tax law restrictions that apply to itemized charitable write-offs. QCDs can effectively add to the standard deduction (or existing charitable deduction if you are still itemizing) by allowing direct donations made from IRAs to be excluded from income, thus lowering adjusted gross income — and the tax bill.

A QCD is different from a required minimum distribution (RMD), which individuals must begin to take no later than the year they reach 72. One could take their first RMD before reaching age 70½, but they would not be eligible to do a QCD until they attain age 70½, or they may delay their first RMD until 72 and still take advantage of a QCD at age 70½.

The QCD limit is large, and QCDs can be done in excess of the RMD amount. Each IRA owner is permitted up to $100,000 in QCDs annually.

As with all tax or financial planning issues, it is advisable to consult with your personal tax or accounting advisor as to how this may impact or benefit you. When you are ready to take advantage of a QCD, your investment advisor or retirement account custodian can and should assist you with the direct transfer of funds to your charity of choice. Happy planning

Mark Bishop, CPA, CFP, Congregation Member

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