Tax Law Changes: Transferring Required Minimum Distributions from your IRA to Charity

Tax Law Changes: Transferring Required Minimum Distributions from your IRA to Charity

If you make required minimum distributions, but don’t want the amount added to your adjusted gross income, the new tax law makes it easy to donate to charity. (Click here to learn more about required minimum distributions.)

The new income tax law doesn’t change the rules for qualified charitable distributions (QCDs). Those rules let taxpayers who are 70 ½ or older directly transfer up to $100,000 from their IRAs to charity each year and have it count toward their required minimum distribution (RMD) without being added to their adjusted gross income. In fact, the new law is likely to make QCDs more attractive.

If both husband and wife are 65 or older, beginning in 2018 the standard deduction is $26,600; single taxpayers and heads of household age 65 and older get $13,600 and $19,600, respectively. As a result, many taxpayers who have historically itemized will now be taking the standard deduction.

The tax-free transfer from an IRA allows the taxpayer to benefit from making the gift to the charity without itemizing their deductions. Taxpayers who employ this strategy can still take the increased standard deduction and the amount of the charitable gift isn’t included in adjusted gross income.

Using the QCD to exclude all or a portion of the RMD from adjusted gross income could also have other benefits:

  1. It may help keep income below the threshold for being subject to the Medicare Part D high-income surcharge.
  2. It may reduce or eliminate the percentage of Social Security benefits subject to taxation.

If you have any questions or would like to discuss this tax saving opportunity further, please call your hb&k tax professional.