November 24, 2018 - Douglas Myser

Tax smart move for 70 year olds. Those who have reached the age of 70 and a half. You can make donations to an IRS approved charity out of your IRA. These so called qualified charitable contributions (CQDs) are not a permanent feature of the tax law--unless Congress changes its mind. To take maximum advantage for 2018, you should replace some or all of this year's IRS required minimum distributions with tax smart QCDs. Here's what you need to know. Qualified charitable distributions can be taken out of your traditional IRSs free of any federal income hit. In contrast, other traditional IRS distributions are taxable (wholly or partially depending on whether you've made any nondeductible contributions over the years. Tax smart move for 70 year olds.

Tax smart move for 70 year olds are unlike garden variety charitable donations, you can't claim itemized deductions for QCDs. That's ok, because the tax treatment of QCDs equates to a 100% deduction--because you'll never be taxed on those amounts, and you don't have to worry about any of the tax law restrictions that apply to itemized charitable write offs.

A QCD must meet the following requirements. It must be distributed from an IRS, and it cannot occur before you, as the IRS owner or beneficiary are age 70 and a half. I must meet the normal tax law requirements for a 100% deductible charitable donation. If you receive any benefits that would be subtracted from a donation under the normal charitable deduction rule, (such as free tickets to an event), the distribution cannot be a QCD. Beware of this rule. If you run afoul of it, you may incur a tax debt and be in need of Tax Resolution Services to avoid a IRS Wage Garnishment.

It must be a distribution that would otherwise be taxable. A Roth IRS distribution can meet this requirement if it's not a qualified (meaning tax free) distribution. In that case you may want to pursue the Tax Relief options available, including the IRS Fresh Start Program. However, making QCDs out of Roth IRAs is generally inadvisable for reasons explained late in this column.  If you inherited an IRS form a deceased original account owner, you too can do the QCD drill with the inherited account if you've reached age 70 and a half.