IRA Owners Can Donate Up to $210K Tax-Free
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This is a reminder that retirees with individual retirement accounts, also known as an IRA, have a unique opportunity to give more to charity while saving on taxes. This action also has the advantage of counting towards your yearly required minimum distribution (RMD). In 2024, eligible IRA owners aged 70½ or older can make qualified charitable distributions (QCDs) of up to $105,000 per person, per year, tax-free. If you are married, and your spouse also has an IRA, then you have double the opportunity. This means a combined maximum of $210,000 can be donated without triggering income tax.
To clarify, a qualified charitable distribution is a tax-free donation made directly from an IRA to a qualified charity. This allows retirees to donate their money and make a difference without being penalized with an increase to their taxable income. This is because IRA withdrawals normally are taxed. But with a QCD, the donated amount is excluded, offering a tax-efficient way to fulfill your required minimum distribution obligation for those aged 73 or older. This is especially valuable for retirees who don’t itemize deductions since QCDs do not require you to itemize your tax deductions.
Eligible IRA owners can start by contacting their IRA trustee to arrange a direct transfer to a 501(c)(3) charity, ensuring the contribution qualifies as a QCD. Be aware that donations to donor-advised funds or private foundations don’t qualify, so choose your charity wisely. For documentation, maintain records of each QCD for tax reporting to ensure compliance with IRS rules.
QCDs are a powerful tool for tax-efficient charitable giving. Whether you’re looking to reduce taxable income or make a significant impact for your favorite cause, qualified charitable distributions are worth considering. In 2025, they will become even more advantageous as the IRS adjusts the donation limit for inflation, raising the QCD limit to $108,000. Still, before you take action to make a donation before the year ends, we highly recommend speaking with a tax planning professional. At XQ CPA, we will guide you towards the most tax savings while ensuring your compliance with IRS regulations.
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Want to pay less taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
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