If you’re older than 72 and retired, you’ll be thankful you read this!

Retirees who have turned 72 must now take required minimum distributions (RMDs) from your traditional retirement accounts, based on life expectancy/ mortality tables provided by the IRS.  The RMD is a minimum amount of retirement savings distribution that must be taken out from retirees’ total pool of retirement accounts by the end of the year they turned 72, and the penalty for not doing so is steep, at 50%.

“There is, however, a tax planning opportunity that allows you to make a Qualified Charitable Distribution, or QCD, to a qualified nonprofit of your choosing,” says Jerry L. Levens, CPA, retired partner from CPA firm of Alexander, Van Loon, Sloan, Levens & Favre, PLLC, with offers in Bay St. Louis, Gulfport and Wiggins. Levens says that the amount eligible for the QCD is based on an RMD computation based on life expectancy/ mortality tables provided by the IRS.
QCDs only apply to IRA RMDs, and are not eligible against the annual RMD from 401K plans. A financial advisor can help retirees explore a rollover from a 401K Plan to an IRA, to use the QCD option for one’s favorite charity or charities.

A QCD allows the owner of an IRA to direct the retirement account’s custodian to make a direct distribution (up to $100,000.00 per year) to a qualifying charity so that the RMD is never counted as income to the retiree. For example, if your annual RMD is $120,000.00, the tax benefit ceiling for the QCD is $100,000.00. If your annual RMD amount is $65,000.00, however, 100% could be maxed out as a QCD.

Levens lists the following as income tax benefits of using the QCD option:

  1. lowering of your adjusted gross income (AGI) and therefore taxable income;
  2. potential lowering of the amount of your Social Security benefits that are subject to reporting as taxable income;
  3. potential lowering of your Medicare Premiums Part B and Part D (drug plan) premiums for the ensuing year, due to the income level
  4. premium adjustments added to the standard base premium charges (Income Related Monthly Adjustment Amounts, or IRMAA).

The QCD amount can be transferred to one charity, or split among multiple charities, but must be a direct transfer to a qualifying 501(c)(3). Note that private foundations and donor advised funds are not eligible to receive QCDs.

Speak with your financial advisor today or contact GCCF Controller Patty Hammons if you are considering making an RMD transfer this year, as there are countless Gulf Coast residents who would be impacted positively by a donation to one of our many endowed funds. You could also start your own fund!

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