“What deadline?” No, not the one where you need to buy a turkey nor the one to have the house ready for the annual friends-and-family get-together. It’s not something associated with Black Friday or a rebate filing. And it’s not even an actual deadline but more of a pragmatic one. Additionally, you need to be at least 70 ½ years old for it to apply to you. What am I talking about? Qualified Charitable Distributions, or QCDs for short.
What are Qualified Charitable Distributions?
The IRS allows individuals who are 70½ to transfer up to $100,000 directly from their IRA to 501(c)3 organizations without paying federal income tax on those distributions. Those gifts are called IRA charitable rollovers or Qualified Charitable Distributions and also help satisfy one’s annual Required Minimum Distribution. Furthermore, QCDs help non-itemized tax filers by reducing their tax liability while keeping their Adjusted Goss Income (AGI for short) to a minimum. This is an important detail since the AGI impacts, among other things, the taxation of Social Security benefits. Remember, QCDs can only be used for IRAs and not with a 401(k) or other retirement plans.
How do I Give with a QCD?
First, ensure the organization is eligible to receive tax-deductible contributions. Then, if you have an IRA custodian that issues you a checkbook for your IRA, send your donation directly to the qualifying organization by Thanksgiving. If a completed form is required by your custodian for these QCDs, additional time should be given to this self-imposed deadline.
Why by Thanksgiving?
With most charitable gifts, as long as the check and the USPS postage date are both before the end of the year, it counts as a charitable deduction for that year. Not so with QCD checks. It’s not when it’s dated but when the check clears that matters. The IRS may give some leniency on 2021 checks that clear in the New Year, but as the old adage says, “an ounce of prevention is worth a pound of cure!” So get those QCD checks in the mail by Thanksgiving. That allows 5 weeks for the charity and the custodian to process them and have the funds deducted from your IRA.
This self-imposed deadline may be a shift in your thinking but it can save you some headaches down the road. The QCD is a wonderful giving tool that should be fully utilized if you can. It, along with other ways to leverage your charitable giving, is what we at Stewardship Advisors enjoy helping folks learn. Contact us to see if we can help you lower your taxes through charitable giving.