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Tax Planning for 2018 and Beyond: Gifts to Charity Can Qualify as Required Minimum Distributions (RMDs)

We often advise our clients on the tax-savvy option of donating appreciated stock to their favorite charity instead of writing a check.

In 2015, the Federal Government made another tax-advantaged way to donate to charity, and in 2018, with the recent tax changes we are utilizing that option more and more.  The strategy I am referring to is known as a Qualified Charitable Distribution (QCD), which allows you to make charitable gifts directly from your Individual Retirement Account (IRA). If you must take Required Minimum Distributions (RMDs) from your IRA, you can sidestep some or all of the taxes on these distributions by donating them to charity.

The requirements for making charitable gifts from IRAs are:

  • Distributions must be made directly from an IRA to a qualified charity (not a Donor Advised Fund).
  • QCDs can only be done from an IRA. This tax exemption doesn’t apply to other types of retirement accounts like 401(k)s and 403(b)s.
  • Distributions must occur after the IRA owner has turned age 70 ½.
  • Taxpayers are limited to up to $100,000 of QCDs in a single tax year, but that is a per-IRA-owner limit. Spouses could potentially donate a total of $200,000 to charity.

Both strategies—donating appreciated stock and making QCDs—are more tax-efficient options to make charitable gifts for individuals than outright gifts of cash. In the past, gifts of appreciated securities were likely to be more favorable than QCDs due to a “double tax” benefit: These contributions provide an income-tax deduction and also avoid taxes on the associated capital gains. The key to receive a tax benefit for your charitable donations is that you must be itemizing deductions on your tax return. QCDs have become more tax advantageous for many because the standard deduction has increased significantly under the new tax law from $12,700 to $24,000 for those married filing joint (those over age 65 receive an additional $1,300 standard deduction). Therefore, more families are now using the standard deduction. In other words, many families are no longer receiving a tax benefit from their charitable gifts .

What if you are younger than 70½?

Unfortunately, you do not qualify for QCDs. You may have also lost some or all of the tax benefit of gifting to charity if you now use the standard deduction (or if you only itemize because of your level of charitable gifting). All is not lost though! We have identified other charitable gifting strategies to help maximize your tax benefit when gifting to charity. For example, please see my colleague Matt Masterson’s blog on “Bunching Charitable Deductions.”

As always, it’s important to discuss gifting strategies with your Wealth Advisor and tax professional before you make any final decisions. Please reach to your Wealth Advisor if you have any questions on QCDs or would like to discuss other potential gifting strategies that make sense for you and your family.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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