Please note, this article was written in 2019, prior to the CAREs Act. As such, the age requirement for Required Minimum Distributions (RMDs) is now 72.

If you are over 70.5, are subject to RMDs, and want to benefit charities, a Qualified Charitable Distribution is almost always going to be your most tax-effective way to give.

A QCD is a direct contribution of your RMD to a qualified charity. The QCD goes directly to the charity and is not includable in your income which has some potential advantages. Post age 70½ Required Minimum Distributions (RMDs) are included in your Adjusted Gross Income (AGI).

Many of the deductions and credits that taxpayers can take advantage of are subject to AGI or income limitations, so the lower they are, the better.

1. If you itemize deductions, starting in 2019, you can deduct medical expenses only in excess of 10% of your AGI. Therefore, the lower your AGI is, the more of your medical and dental expenses you can deduct. For example, if your AGI is $75,000 10% is $7,500 and all expenses over $7,500 are deductible. If your AGI is $50,000 then the threshold is $5,000.
2. Your Medicare part B & D premiums are also based on your AGI.
3. Although not based on AGI, the taxability of your Social Security is based on total income, which is also increased by RMDs.
4. Under the new tax law with a larger standard deduction, your charitable gifts may not have any impact on your taxes if the sum of all your itemized deductions is less than the standard deduction. A QCD reduces your reportable income by the amount of the QCD, independent of the standard deduction, which has the same impact as if the charitable gift was fully deductible.

Your QCD should be part of your RMD not in addition to it.

This will minimize your taxable income. If you are taking IRA withdrawals monthly as part of DIESEL®, consider reducing your withdrawal amount and allocating some of your RMDs as a QCD early in the year so your total required withdrawal, including your QCD does not exceed your RMD.

If you are interested in learning more about QCDs and if this option makes sense for you, more detailed information can be found here. Your advisor would also be happy to answer any questions you may have, and set up a QCD, including check writing, for you.