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Is a Qualified Charitable Distribution Right for You?

Is a Qualified Charitable Distribution Right for You?

March 14, 2022

Required Minimum Distributions (RMDs) and Their Impact on Retirement Planning

Whether you’re fully or partly retired, you may find that your assets are sufficient to cover your lifestyle for the remainder of your retirement. In that case, you may not feel like you need to use any additional money from your IRA. And that’s fine – until you reach age 72 (age 70.5 before January 1, 2020).

Then, the IRS requires will require you to withdraw funds from your IRA in statutorily mandated annual increments known as “Required Minimum Distributions” (RMDs). The way IRAs are structured, you receive a tax deduction for making contributions on the condition that withdrawals from the account are taxed as ordinary income.

That means two things:

  1. you must take RMDs whether you want to or not (there’s a huge penalty if you don’t) and
  2. the RMD money could push your adjusted income into a higher tax bracket, depending on your taxable income.

Utilizing Qualified Charitable Distributions (QCDs) to Manage Taxes in Retirement

If making regular charitable contributions is important to you, a qualified charitable distribution (QCD) may be a suitable tax-relief strategy. Starting at age 70.5, (Yes, you could do a charitable distribution BEFORE you are required to make a distribution.) you can direct IRA distributions of up to $100,000 per year to a qualified 501(c)3 charity of your choice.

This option has three benefits:

First – you help a charity.

Second – You satisfy the IRS minimum distribution requirement, but you do NOT show taxable income from the distribution.

Third – You can deduct the contribution from your gross income, which lowers your adjusted gross income (AGI).

Since the IRS uses AGI in several calculations -- including the taxable portion of your Social Security benefits and what deductions and credits you qualify to receive -- you can minimize the impact on your other retirement benefits. Particularly if you regularly support charities, you may find the QCD rule is truly a win-win.

QCD guide

Before you make any decisions, be sure to consult with your tax professional for guidance specific to your household. Then, we can review your portfolio to determine if your current assets can support these contributions without impacting your overall financial plan.

If you would like to talk about this, I would be honored to assist you. Follow this LINK to find a time for us to talk.

Or, you might want to find another CERTIFIED FINANCIAL PLANNER™ professional to advise you.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple of things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor paid by clients, not financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.