For retirees, understanding Qualified Charitable Distributions (QCDs) and how they relate to Required Minimum Distributions (RMDs) can have a meaningful impact on your tax return.

  • RMDs are the funds you’re required to withdraw annually from tax-deferred retirement accounts (such as IRAs and 401(k)s) once you reach age 72*.
  • A QCD is a cash gift from your IRA to a 501(c)(3) charity. Making a QCD can count toward satisfying your RMD.

Reducing your income through the use of a QCD may also reduce other incremental taxes and help avoid increases in Medicare premiums.  With more taxpayers using the standard deduction and losing the tax advantages of traditional charitable contributions, QCD’s are an excellent way to reduce taxes through charitable giving.

If you do pursue a QCD, it’s critical to Pay Attention come tax time.  When you receive your 1099-R form, the QCD will appear on the report as a normal distribution, making it taxable. You must tell your CPA / tax preparer about any charitable contributions you made with your RMD to reflect them accurately in your tax filing.

Whether you’re already taking advantage of the QCD route or would like to do so moving forward, talk to your CornerCap advisor as well as your CPA about the specifics of how this technique applies to your situation.

* Note that this change of RMD age requirement from 70½ to 72 is only applicable to retirees who turned 70½ on or after January 1, 2020.  It’s important to consult with a tax advisor to interpret implications of recent RMD changes specific to your situation.