Insights

VIDEO TRANSCRIPT

If the required minimum distributions from your IRA are causing issues for you, a qualified charitable distribution or QCD may be a better option. My name is Katie Blue, and I am joined by Mike Pitts. Mike, tell us more about distributions from an IRA.

Thanks, Katie. When taxpayers reach the age of 70-and-a-half, the IRS forces them to start paying taxes on money in their individual retirement accounts or IRAs. They do this by mandating a required minimum distribution or RMD. Once this money is paid out of an IRA, the government can tax it by adding it to your income.

But there's another way to make a distribution without increasing your income, correct?

Yes, Katie, that is correct. That sort of distribution is called a qualified charitable distribution or QCD. And there are several benefits to choosing this option. First and foremost, the distribution is not included in your adjusted gross income on your tax return. And by keeping it out of AGI, it does not impact the taxability of your Social Security benefits or your Medicare premiums. Also, you don't need to itemize your deductions to benefit from a QCD, so it still works for taxpayers who take the standard deduction. For higher income taxpayers, the distribution may help you to avoid the alternative minimum tax. For those who itemize, it won't impact your medical expense deductions since it has no impact on AGI. The second major benefit is that the QCD counts against your required minimum distributions. This really helps those who are forced to take RMDs, but don't really need the money for living expenses. Instead of taking an RMD amount that you don't need and paying taxes on it, you can pass that money directly to a charity and satisfy your required minimum distribution.

Okay, Mike, who can make a qualified charitable distribution?

Well first, you must have reached age 70-and-a-half to make a QCD. Second, QCDs can only be made from traditional IRAs. You cannot make a QCD from a retirement plan, a SEP IRA, or a SIMPLE IRA.

Okay, last chance. What else should someone know about making a qualified charitable distribution?

Well, the QCD is limited to $100,000 per taxpayer per year. So a husband and wife, who each have IRA accounts, can make total distributions of up to 200,000 if they would like. The distributions must be made directly by your IRA trustee to a qualified charity. Finally, you need to make sure your accountant reports it correctly on your tax return. The QCD does not receive any special coding on the 1099-R issued by your IRA trustee. So, you will need to make sure your accountant knows you made a QCD.

Mike, thank you so much for sharing your thoughts on qualified charitable distributions. If you have additional questions, please contact your Old National advisor or your qualified tax professional to discuss your specific tax situation.


Investment instruments utilized by Old National Wealth Management are not FDIC insured, are not deposits or other obligations of Old National Wealth Management, Old National Bank, its parent company or affiliates, and involve investment risk including the possible loss of principal invested.

Investment and securities information presented herein is unique to Old National Wealth Management's approach to investment management. All information and opinions have been obtained from sources believed to be reliable and current at the time of publication, but are not guaranteed and do not claim to be a complete statement of all material factors. Examples or other representations made herein are for illustrative purposes and are not intended to be specific legal, tax, or investment advice and do not represent a solicitation.

Investments and strategies that may be presented may not be suitable for all investors. Old National Wealth Management Client Advisors and Portfolio Managers will work with interested parties to execute plans developed in consultation with their attorney or tax advisor.

The comments, views and opinions expressed herein are those of the author and Old National Wealth Management. From time-to-time, Old National Bancorp affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. Old National Bancorp and its affiliates do not accept any liability for any direct, indirect or consequential damages or losses arising from any use of this report or its contents.

Back to top