QCDS: Tax Saving Strategy

Brian specializes in retirement planning and comprehensive wealth management for affluent families and individuals and investment/endowment management services for many of Central Maine’s non-profit institutions and has been a member of LPL’s Chairman’s council since 2014.

Brian Bernatchez, Founder and Managing Principal

Golden Pond Wealth Management

While most taxpayers will benefit in 2018 from a reduction in tax rates, the new tax law also means it is less likely that you will itemize your deductions and instead claim the standard deduction. This is where a qualified charitable distribution (QCD) can help.

Under the new 2018 tax law, the standard deduction for a married couple is $26,500 ($24,000 plus $1,250 each for being over age 65). In addition, state and local taxes are now capped at $10,000. If you donate to charity, this could mean you will lose some or all of the benefit of the charitable deduction.

A QCD is a tax-savvy strategy which allows donors who have reached the age of 70.5 to transfer up to $100,000 per year per person directly from your IRA to your favorite charities. Any amount processed as a QCD counts toward the required minimum distribution. In addition, the QCD bypasses your 1040 which may mean a reduction or elimination of the net investment income tax and/or a possible reduction in the taxation of your social security benefits…and you still get to take full advantage of the increased standard deduction! For non-itemizers, donating to a charity via a direct transfer out of the IRA is the only way to get a tax benefit for your donation.

Let’s look at an example to show the benefits of the QCD:

Randy and Helen are both age 75 and give regularly to the Harold Alfond Center for Cancer Care at MaineGeneral. In 2018, they are planning to donate $15,000 and their required minimum distribution is $30,000. Their total itemized deductions (not including charitable contributions) amount to $11,000 so they are planning to take the new standard deduction of $26,500. If they write a check out to MaineGeneral for $15,000, they will still be forced to take the standard deduction because their total itemized deductions of $26,000 do not exceed the dramatically increased standard deduction of $26,500. This means they would get absolutely no tax benefit for their $15,000 donation. If instead, they arrange to have the $15,000 sent to MaineGeneral directly from their IRAs the transfer will not only count toward their required minimum distributions, (assuming a 22% federal tax bracket) it will save them $3,300 in taxes!

A few things to keep in mind regarding QCDS:

The eligible charity must receive the proceeds from your IRA (401ks and 403bs are not eligible for this benefit) in good order by the end of the calendar year so the time to begin planning is now. If you are set up to receive your RMD automatically this year or have arranged to have it deposited into another account, you should contact your custodian or financial adviser to terminate that arrangement and instead give them instructions on how much of your RMD you would like transferred to MaineGeneral.

The QCD is a powerful tax saving strategy that should be seriously considered by all current and potential MaineGeneral supporters who are over age 70 and have IRAs which are subject to required minimum distributions.

If you also plan to include MaineGeneral in your estate plans, the value of your IRA to both your family and MaineGeneral can be further leveraged by naming MGH as contingent beneficiary instead of receiving your donation through your will or trust -but we will save the discussion of that strategy for a future newsletter.

If you would like more information about the benefits of QCD’s-qualified charitable distributions I encourage you to contact your financial adviser or CPA or the fine folks in the Office of Philanthropy at MaineGeneral (207) 626-1809 or email philanthropy

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities and Advisory Services offered through LPL Financial. A Registered Investment Advisor Member FINRA/SIPC

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