If you dream of your financial legacy leaving a lasting impact on the world, there’s a way you can make a difference. You can use your Required Minimum Distribution (RMD) to make charitable donations, a strategy that could benefit both you and the causes important to you.
We try to avoid hitting you with too many acronyms; it can be overwhelming and confusing, especially when learning new terminology. Below, we’ve listed a few acronyms that we’ll be referring to in this email so that you have a handy reference point whenever you need it.
You must withdraw money once you turn 73 if you have a traditional IRA. These withdrawals, or RMDs, are taxed at the ordinary income tax rate, which can sometimes push your annual income into a higher tax bracket, which may cause retirement concerns.1
However, there’s a strategy that may help you put these distributions to good use and can help manage your tax situation: the Qualified Charitable Distribution (QCD) rule. This rule allows traditional IRA owners to deduct their RMDs on their tax returns if they donate the money to a charity or a non-profit organization. You can effectively manage your income taxes by lowering your Adjusted Gross Income (AGI). Please note the IRS puts a $100,000 limit on the total distribution.2
Here’s how it works: Once you decide to make a QCD, you choose a charity that qualifies as a charitable organization under IRS rules. Let your IRA custodian know your intention to donate your distribution and the amount you’d like. The custodian will then send a check to the charity on your behalf. It’s important to remember that QCDs must be made directly from your IRA; you may lose the benefit if the distribution is paid to you first and then passed on to a charitable organization.2, 3
Who should consider using the QCD rule? It makes sense if you:
- Would like your RMD to benefit another organization
- Want to support an approved charity rather than a foundation
- Want to make a larger donation than you could in cash4
