Over 70 ½ years old and subject to RMDs? A QCD may help lower your AGI.

Contributed by Philippe Beauchene, LCNV Volunteer

No, this isn’t a pitch for a new drug to lower your cholesterol levels. What we are talking about here is a way to give to LCNV and reduce taxes under the new tax rules (which make it harder to itemize deductions).

If you are currently over the age of 70 ½ and are taking Required Minimum Distributions (RMD) from your IRA, you can take advantage of this strategy. Quite a few of our generous supporters fall into this category. Up to now they have been regularly giving to LCNV by writing a check from their personal funds, then claiming these donations, along with any other charitable giving, as itemized charitable gifts on their tax return (Sch A).

However, changes to tax law effective in 2018 might suggest a different strategy:  in 2019, the standard deduction has been increased to $12,200 for a single filer and to $24,400 for married couple filing jointly.  [If you are 65 or older the standard deduction is even higher – $13,850 single, $27,000 married couple filing jointly (assuming both spouses are 65 or older)]. The net result is that your charitable gifts may no longer have the desired impact on your taxes if the sum of all of your itemized deductions (charitable gifts, mortgage interest, medical, etc.) is less than the new standard deduction.

Consider instead a different approach, the Qualified Charitable Distribution (QCD). A QCD is a direct contribution from your IRA plan to LCNV. The retirement plan writes the check to LCNV at your direction. This distribution is NOT included in your taxable income and has the effect of lowering your Adjusted Gross Income (AGI).  For example, let’s say the 2019 RMD from your IRA is $25,000.  If you make a QCD of $15,000 from this IRA account, then your reportable taxable distribution is only $10,000.

Lowering your AGI by using a Qualified Charitable Distribution has several positive effects:

  • The QCD reduces your reportable income by the amount of the QCD, independent of the standard deduction, which has the same impact as if the charitable gift was fully deductible. A lower income means less regular income.
  • Many taxpayers are subject to the 8% Net Investment Income Tax (NIIT). The NIIT is based on your AGI, so lowering your AGI can reduce or eliminate this particular tax.
  • Your Medicare Part B & D premiums two years’ hence (in 2021) will be based on your AGI this year. So lowering your AGI now could reduce any Medicare premium surcharges in 2021.

If you are interested in setting up a Qualified Charitable Distribution to LCNV, please contact Michael Mahrer, LCNV’s Director of Development and Public Relations at mmahrer@englishempowermentcenter.org.

* Determining the effect of making a donation on a donor’s tax liability is the sole responsibility of the donor. Before making a donation, or when tax-related questions occur, donors are encouraged to seek advice from a tax accountant or other tax advisor.