Don't Forget The Qualified Charitable Distribution!

Welcome to another episode of Wisdom and Wealth. Thank you so much for joining us today. It's December and as part of the season, charitable giving normally comes up as we approach the holidays. If you’d like to watch or listen to this episode please check out those options below!

Charitable Giving

If you're like me, I try to reevaluate how and where we are giving resources over the past year. To assist with this, we try to make sure our giving is both planned and intentional. We want to make sure that we're able to make a difference where we're giving and that our giving is not so spread out that the bulk of our giving is diluted. We also want to ensure that our level of giving “costs” us something. If our giving level is so low that we don’t “feel” it a bit, perhaps we need to raise our giving level. We want to feel stretched a bit and in so doing make the process more meaningful.

We love giving of time and resources we have because of how it makes us feel because of the purpose that comes from it. I dare you to go find someone who doesn’t feel better when they are able to help someone else. Think about it: “Oh I tried that once…biggest letdown ever.” ?The point being, typically we give money to those things that we're passionate about, and our time and money going toward that cause helps us become more connected.

The next piece that I always encourage people with along with your annual giving goals would be in the in the realm of giving of your time. I know for myself personally, the stage of life we're in, it is something that I must force myself to do. I must be intentional about it. This past year, I've sought ways to try to volunteer and give of our time with our kids. It’s been a great reward for us and I would also admonish you to not overlook volunteering your time. ?

So! On to our topic of financial giving. I want to highlight one of the ways that I see out there that is sometimes forgotten about and can be underutilized, especially if who you're partnering with does not read your tax returns. We'll get into that more in a minute. But it's called the qualified charitable distribution, or QCD. It is a way of giving to charity that those who have reached the age of 70.5 you can use to give from their IRA directly to charity and not have it count as income.

It might not sound like a big deal, but let’s unpack why. For analogy purposes let’s think about two separate couples: both of them want to live off of $180,000. That's their income need. And they both want to give $20,000 to charity. So, in situation one, a couple has to report $200,000 worth of income. And then they give $20,000 after paying taxes.

?

Couple #2 Lives off of $180,000 and then gives $20,000 directly to charity from their IRA utilizing the QCD. ?Because they are in the 22% marginal tax bracket utilizing the QCD, couple #2 saved $4,400 in taxes because they didn’t have to report their charitable giving as income and still go to use the standard deduction. So in a sense, they're utilizing $200,000 worth of income and they're getting $47,000 worth of deductions in that instance.

It's a pretty powerful shift when you think about it. And again, what would be some of the reasons that someone wouldn't use this option? Well, they're not aware of it, they don't understand it. Or worse yet, maybe their advisory team just hasn't made them aware of it. And by the time their accountant gets ahold of everything, he or she is typically overrun at tax season and hasn’t brought this to their attention.

The other thing that I come into contact with sometimes, and this is another instance where it causes me to ask questions about your team, is in a situation where someone is forced to take required minimum distributions that are greater than their living expense needs. So for instance, someone has a living expense of $200,000 but their required minimum distribution is $250,000. This typically rears it’s ugly head when someone is in their late 70’s or early 80’s. In this instance the qualified charitable deduction could be a way that you're able to meet some of your required mineral distribution threshold, because the QCD, counts towards your RMD requirement. But if you or your parents find themselves in this situation, please ask yourself how you got there and who was doing the planning, or lack thereof that allowed you to get here.

?So there are two ways in which I think that the qualified charitable deduction can be most beneficial to you if you are charitably inclined. If you're 70.5 and you're charitably inclined, please utilize the QCD for your giving. Lastly, if you aren't charitably inclined, but you find yourself having to take out more in required minimum distributions than is necessary for your lifestyle need, consider utilizing the QCD as an option.

If you have any questions, as always, please reach out. If there's anything that I'm passionate about, It's financial giving, financial planning and wealth management. One last request, please like, rate, and subscribe to the podcast as this helps us reach and serve additional listeners. Thank you for your time and have a great day.

This Newsletter is for general information purposes only and is not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult with your attorney, accountant, financial or tax advisor. Investing involves risk, including possible loss of principle. No strategy assures success or protects against loss. A diversified portfolio does not ensure a profit or protect against loss in a declining market.?Unless otherwise noted, guests of the Wisdom and Wealth Podcast are not affiliated with CWM LLC.

?