Understanding SECURE Act Changes to RMD Age & Benefits of QCD
In December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed into law, making substantial changes to retirement account rules—the most notable change being the Required Minimum Distribution (RMD) age. If you reached age 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach age 72. The RMD is a taxable withdrawal from an IRA, taxed at the higher ordinary income tax rates.
Interestingly, the SECURE Act did not change the age for Qualified Charitable Distributions (QCD). A QCD is a tax-efficient method of making charitable donations with funds from a Traditional IRA, Inherited IRA, (inactive) SEP IRA or (inactive) SIMPLE IRA. In order to make a QCD, an individual must 1) be over the age of 70 ½ at the time the distribution is made, 2) limit the annual total QCD from all IRAs to $100,000 per year per taxpayer, and 3) transfer the money or property from the IRA directly to a qualified public charity.
Qualified Charitable Distributions from an IRA may count toward completing the annual RMD. However, the QCD is not included in income, unlike regular withdrawals from an IRA. Also, QCDs do not require you to itemize deductions on your tax return, which means that you can take advantage of the higher standard deduction, but still use the QCD for charitable giving. While the QCD is not taxed, you cannot claim the distribution as an itemized charitable tax deduction. Furthermore, since the QCD is not included in Adjusted Gross Income, the amount of taxable Social Security income may be less and Medicare premiums may be lower.
The charity that receives a QCD must be a 501(c)(3) organization, eligible to receive tax-deductible contributions. You can check the eligibility of an organization by going to IRS.gov and using the “Tax-exempt Organization Search” tool or going to GuideStar.org. Private foundations and donor-advised funds do not qualify for QCDs. A QCD is not subject to federal withholding. (State tax rules vary; please consult a tax advisor for guidance.) With no income tax withholding, you are able to give more to the charity.
At tax time, you will receive a 1099-R for all the distributions taken from the IRAs. You will have to inform your tax preparer if you made a Qualified Charitable Distribution as the 1099-R does not identify the QCD. You will also need the written acknowledgment from the charity to support the tax-free QCD for your tax records.
In summary, using a Qualified Charitable Distribution allows you to enjoy the benefits of giving to a charity of your choice, while reducing your taxable income—regardless of whether you itemize deductions—and it may count toward completing your Required Minimum Distribution if done correctly.
Please contact your Alpine Bank Wealth Management officer if you would like to use a Qualified Charitable Distribution for charitable giving prior to year-end.
Lisa Isaacson – CPA/PFS, CFP, Vice President
Alpine Bank Wealth Management
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