Secure Act, Part 2 – QCDs

Following up on last week’s post about the required minimum distribution (RMD) being pushed back to age 70 ½, I want to discuss an interesting rule that actually stays the same under the new law. Qualified Charitable Distributions (QCDs) from IRAs are still allowed beginning at age 70 ½. Originally the QCD and RMD were started at the same time but under the new law they kept QCD eligibility the same while moving the RMD age to 72.

As a refresher, QCDs are distributions that you make directly from your IRA to a qualified charity. If done correctly, the distribution from the IRA is not taxable. This has become an increasingly popular strategy since many more families are unable to deduct standard cash gifts to charity with the higher standard deductions that started in 2018.

No QCD example – Bill takes a $40,000 distribution from his IRA that is taxable. He also donates $15,000 to his church and usually writes it off on his taxes. However, his itemized deductions, including the gifts to charity, do not exceed the standard deduction so he gets no tax benefit for his gift.

QCD example – Bill takes a $40,000 distribution from his IRA, $25,000 paid to him and $15,000 paid directly to his church. Only $25,000 will be considered taxable. He cannot itemize the charitable deduction but since he was going to take the standard deduction anyway, it doesn’t matter.

In addition, with the gap between when QCDs start at age 70 ½ and when RMDs start at 72, there is now a unique window when large charitable contributions can be made to lower future RMDs.

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.