A QCD is a direct transfer of funds from your IRA to a qualified charity, which can include organizations like churches, scholarship funds, or other civic groups. This strategy can be executed annually or on a recurring basis, such as weekly or monthly. By using a QCD, you reduce your adjusted gross income, which in turn lowers your tax bill—even if you take the standard deduction.

To determine if QCDs are suitable for your situation, consider these three key questions:

• Are you age 70.5 or older?
• Are you making charitable contributions?
• Are you taking the standard deduction on your tax return?

If you answered "yes" to all these questions, employing a QCD strategy could be highly advantageous for you.

Benefits of QCDs:

• Tax Efficiency: Utilizing QCDs reduces your adjusted gross income and satisfies the required minimum distributions (RMDs) mandated by the government once you reach RMD age. Typically, RMDs are taxable income when taken directly by an IRA holder. However, if directed to a charity through a QCD, it does not count as taxable income, thus potentially lowering your overall tax burden.
• Age Advantage: You can begin using QCDs once you are 70.5 years old, a few years before you must take RMDs. This age has not changed despite recent shifts in RMD age requirements from 70.5 to 72, then to 73.

Important Considerations:

• Direct Transfer: The distribution must go directly from your IRA to the charity. It's essential that you do not take possession of the funds before they reach the charity.
• Record Keeping: Maintaining accurate records of your QCDs is crucial. The 1099 form associated with your IRA distribution will not specify that a distribution was a QCD. At Clarity Wealth, we track all your QCDs and provide an annual tax letter to your tax professional, ensuring you receive the full tax benefits.

While QCDs offer great benefits, there are limits and additional IRS requirements on how much you can contribute through QCDs, which might require further discussion to fully understand how they apply to your specific financial situation.

If you have any questions about how QCDs can fit into your charitable giving and tax planning strategy, or if you need further clarification on any points, please don’t hesitate to give us a call. We’re here to help you navigate these options and optimize your financial plan.

Here’s to a smarter, more secure retirement.