Ask the Expert
Owen H. Malcolm, today's guest for Ask the Expert, is managing director at Apollon Wealth Management in Atlanta. He is a certified financial planner, earned an MBA in entrepreneurship from Kennesaw State University in 1999 and graduated magna cum laude from Berry College with a bachelor's in finance in 1997. Owen is chair of the Berry College Planned Giving Council and is a member of the Berry Heritage Society, the Berry Alumni Association, and the Alumni Career Network.
Today, Owen is talking with us about QCDs - Qualified Charitable Distributions.
What is a QCD?
A qualified charitable distribution (QCD) is a direct transfer of funds from the custodian of your individual retirement account (IRA) to a qualified charity. QCDs are sometimes referred to as IRA charitable distributions or IRA charitable rollovers.
When can I use a QCD to make a charitable gift?
Initially, when QCDs were introduced, they were directly tied to the Required Minimum Distribution (RMD) age of 70½. While the RMD age has risen in recent years, you can still make a QCD at age 70½, even though you haven't yet reached the RMD age.
How does making a charitable gift using a QCD help me?
Six years ago, when Congress raised the minimum threshold for Americans to itemize their deductions, about 90% of taxpayers lost the tax benefit they had enjoyed by making charitable contributions. For people age 70½ who are no longer able to itemize their deductions, the QCD can function as a de facto tax deduction because whatever amount you give to charity from your IRA via a QCD is not includable in your taxable income.
This benefit also holds true once you reach the age to start RMD withdrawals from your IRA. Whatever you give to charity out of your required distribution via a QCD decreases the taxable amount of your required distribution. For example, if you must take $50,000 out of your IRA but choose to give $10,000 of your RMD to a charity via QCD, you will only be taxed for $40,000.
And there is one more piece of good news - since IRAs can only be in the name of an individual, both partners in a marriage can realize tax savings by giving to a charity from their IRA through a QCD - up to $100,000 each.
Why are IRAs no longer an effective way for me to pass on wealth?
Tax law changes now require your heirs to liquidate their inherited IRA within either a 5-or 10-year window and, of course, pay taxes on those funds. And that rule does not apply to any other non-retirement account in your portfolio, making leaving real estate, stocks, mutual funds, or any other type of asset to your heirs a much more beneficial option. In other words, it is more advantageous to leave IRA accounts to charity and non-retirement accounts to individual heirs.
A few words of caution
Using QCDs to make a charitable donation might seem easy, but it can get technical in a hurry. To safeguard against making a costly mistake, consult with your financial or tax advisor first.
You must also coordinate making your QCD with your brokerage firm, you cannot just take money out of your IRA and then write a check. The check must come directly from your brokerage firm and be made payable to the charity if you want to get that tax break.
Here to help
Finally, the members of Berry's Planned Giving Council and I are available to help. This network of Berry alumni and friends comes from a variety of professional and civic backgrounds (CPAs, financial planners, stockbrokers, trust officers and more) and can provide advice and technical expertise on various planned giving instruments and relevant laws. To learn more about planned giving at Berry or how to connect with a member of the Planned Giving Council, please contact Helen Lansing at 706-378-2867 or firstname.lastname@example.org.