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Year-End Qualified Charitable Distributions: A Smart Tax Strategy

Year-End Qualified Charitable Distributions: A Smart Tax Strategy

Written by: Mike Castle, CFP ®,VP, Senior Wealth Advisor

As the year draws to a close, many individuals seek ways to reduce their tax liability while supporting causes they care about. Year-end qualified charitable distributions (QCDs) have become a popular and tax-efficient method for achieving both of these objectives. This article explores the concept of year-end QCDs, their benefits, and how to make the most of this charitable giving strategy.

What are Year-End Qualified Charitable Distributions (QCDs)?

A Year-End Qualified Charitable Distribution, often referred to as a year-end QCD, is a specific method of donating funds to eligible charities directly from your Individual Retirement Account (IRA) during the last months of the year. QCDs were introduced by the Internal Revenue Service (IRS) in 2006 and have gained popularity for their tax advantages.

The Benefits of Year-End QCDs

1. Tax Efficiency: One of the primary reasons for using QCDs is the tax benefits they offer. By donating directly from your IRA, you can fulfill your annual Required Minimum Distribution (RMD) while excluding the distributed amount from your taxable income. This can help lower your overall tax liability.

2. Reduced Adjusted Gross Income (AGI) : Your AGI plays a pivotal role in determining your eligibility for various tax deductions and credits. Making a QCD reduces your AGI, which can lead to greater tax savings and eligibility for other benefits.

3. Supporting Charitable Causes: QCDs allow you to support your favorite charitable organizations and causes. You can make a meaningful impact by directing funds to causes you are passionate about while enjoying the tax benefits.

Requirements for Year-End QCDs

To ensure that your charitable distribution qualifies for these tax benefits, there are some important requirements to consider:

1. Age Requirements: To make a QCD, you must be at least 70½ years old. It is essential to note that the age requirement is based on the calendar year you obtain this age.

2. Distribution limits: The maximum annual QCD amount is $100,000 per individual. If you file taxes jointly, each spouse can make their QCD of up to $100,000 from their respective IRAs.

3. Eligible Charities: Donations must be made to eligible 501(c)(3) public charities. Ensure that the organization you intend to support qualifies.

How to Make a Year-End QCD

If your account is at First Citizens Wealth Management, you can work with the Advisor on your account to guide you through the process, ensuring that the donation is processed correctly.

As always, consult your CPA for specific tax advice.

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