How to Get Tax Savings on Charitable Gifts

If your intention is to make charitable gifts (and you anticipate you have more than enough saved in your retirement accounts to live comfortably), I want you to know about making charitable gifts directly from an Individual Retirement Account (IRA).

Making a Qualified Charitable Distribution (QCD) can help you reduce your tax bills from traditional IRAs.

For the 2024 tax year, anyone who is at least 70 ½ is allowed to make a QCD. The maximum you can gift through a QCD for 2024 is $105,000. You can make gifts to as many organizations as you want, as long as the combined total does not exceed $105,000. For the 2025 tax year, the limit is $108,000 per person.

To make a QCD, the donation must be made directly from your IRA to the charity of your choice. If you want to do this for 2024, I recommend contacting your brokerage ASAP, as it may take some time for them to make the distribution from your IRA to your charity(ies) before the December 31 deadline for the 2024 tax year.

I want to stress that a QCD should only be considered if you know for sure you have more money than you need in your IRA(s). If that’s the case, and a large part of your IRA accounts are traditional IRAs, the QCD delivers valuable tax breaks.

Before I lay out the tax savings, let’s first review the tax rules for IRA withdrawals.

As you know, all traditional IRAs require owners to take an annual Required Minimum Distribution (RMD), even if they don’t need the money. This is so the government can collect tax on that withdrawal. If you turn 73 between 2023-2032 you must start RMDs at age 73. If you turn 75 after 2032 you must start annual withdrawals by age 75. (Note: you can always make withdrawals sooner. The RMD is simply a date where you must be taking annual withdrawals.)

Your RMD is a percentage of the total balance of your IRA. The percentage increases as you age. Regular withdrawals from a traditional IRA are treated as ordinary income; you will pay tax on every dollar withdrawn. MUST HAVE^TM Documents

Here’s how a QCD can help manage your taxes in retirement.

• A QCD from your IRA is not counted as taxable income. That not only helps lower your tax bill, it can also impact other retirement expenses such as tax on Social Security benefits and your Medicare Part B premium.
• A QCD reduces the remaining balance of the IRA. If you are in a position where you want to minimize your annual RMD (when you reach RMD age), a smaller IRA balance will mean a smaller RMD.
• A QCD counts as an RMD. But I want to repeat: The amount of the QCD is not counted as taxable income. For instance, let’s say you are required to make a $20,000 RMD in 2025. Normally that $20,000 would be counted as income and you will owe income tax on the entire amount. If you were to make $8,000 in charitable donations, that $8,000 will be counted as part of your RMD, and will not be counted as taxable income. Your remaining (taxable) RMD will be $12,000, not $20,000.

If a QCD sounds like it could be a good strategy for you, please consult a trusted tax pro to confirm it is indeed the right move.