Older than 70 ½? Making qualified charitable distributions from your IRA could save you money

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Qualified charitable distributions (QCDs) from individual retirement accounts have risen in popularity.  These QCDs allow seniors older than 70 ½ to make a direct transfer to charity, rather than taking their required minimum distribution (RMD).  Gifts are allowed (up to $100,000 total) in lieu of or in addition to their RMDs.  This is an annual allowance.

QCDs Provide the Equivalent of a Charitable Tax Deduction, Even While Claiming the New Standard Deduction 

Seniors over 70 ½ who might otherwise receive no tax deduction for their charitable gifts because of the new standard deduction can receive a tax benefit by making QCDs from their IRA accounts.  (See more on itemized deductions and the new standard deduction amounts in our previously published blog post.)

The Tax Cuts and Jobs Act may make it difficult for taxpayers to receive a benefit for their charitable contributions.  If total itemized deductions fall below the new standard deduction threshold, taxpayers will simply receive the standard deduction.  However, charitable seniors can effectively create a charitable contribution by making a QCD from their IRA account in lieu of their RMD.

For example, rather than taking a $5,000 RMD, seniors can arrange to direct the $5,000 to the charity of their choice, which has the same effect as a charitable contribution.  It satisfies their charitable intent and allows them to avoid paying income taxes on the RMD amount, while still receiving the benefit from their standard deduction.

There are a couple of other potential benefits to making these charitable distributions, which we describe below.

QCDs Can Reduce Taxable Income

The QCD will reduce the taxpayer’s adjusted gross income (AGI).  In addition to lowering the overall tax bill by reducing Individual Retirement Arrangement (IRA) income, this could be beneficial if a taxpayer has large medical deductions, as the medical deduction after 2019 is limited to amounts in excess of 10% of a taxpayer’s AGI.  So, in this case, reducing AGI could result in additional tax savings.

QCDs Can Reduce the Medicare IRMAA Surcharge

The QCD will reduce a taxpayer’s modified AGI, which determines the amount of their Medicare IRMAA surcharge. This surcharge is often an unpleasant surprise for retirees and making a QCD can reduce its impact.  The surcharge affects high income medicare recipients with Medicare Part B and Part D.  To learn about the Part B IRMAA amounts please click here and to learn about the Part D IRMAA amounts please click here.

We Can Help.

Understanding and taking advantage of these tax law benefits is no easy task.  We, at Horizon Wealth Advisors, and our associated CPA firm at Maddox, Thomson & Associates, stand ready to help.  Please call us or email us to set up an appointment.


Horizon Wealth Advisors is a Houston based fee-only wealth management firm. Horizon is a fiduciary advisor. We specialize in helping successful individuals and families understand, organize, and manage their often complex financial situations. Horizon offers integrated financial planning and investment management services.

Larry Maddox, CFP®, CPA
Larry founded Horizon Advisors, LLC in Houston, Texas in 1999 with fellow business partner Joe Thomson. He collaborates with our wealth management team and other external advisors to provide comprehensive wealth management services.

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