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Qualified Charitable Distribution (QCD)


What Is a Qualified Charitable Distribution (QCD)?

A qualified charitable distribution (QCD) is a distribution from your individual retirement account (IRA) to a qualified charity. You must be age 70½ or older to make a qualified charitable distribution. A qualified charitable distribution is not taxed, nor is it included in your taxable income.
If certain conditions are met, QCDs also can count toward the required minimum distributions (RMDs) that people who are age 73 or older must meet each year if they have traditional IRAs (or a number of other tax-advantaged retirement plans that you can’t use for a QCD). Also important: You don’t have to itemize on your tax return to take advantage of a QCD.


How a Qualified Charitable Distribution (QCD) Works 
Anyone age 70½ or older can opt to take money from their IRA and donate it to a qualified charity. Qualified charitable distributions can be made from a traditional IRA or a Roth IRA, but there’s no tax benefit to making a QCD from a Roth IRA because distributions are already tax free. You can also take QCDs from Active Simplified Employee Pension Plan (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, if they are not ongoing SEP or SIMPLE plans (meaning that no contribution has been added to the plan in the year when the QCD is taken). You cannot take QCDs from 401(k)s, however.
Not every charity qualifies for a qualified charitable distribution. Check with a tax professional beforehand to make sure that the organization you plan to gift qualifies for QCDs.

Qualified charitable distributions can help reduce your federal tax bill in two ways.

Lower Taxable Income
While a QCD is a withdrawal from your IRA, it is not counted as taxable income on your tax return like regular withdrawals are. Instead, a QCD can be deducted from your gross income on your tax return — without having to itemize your deductions. This both lowers your income and means that you can take the standard deduction instead of itemizing if you prefer.
The standard deduction is a specific amount you can use to reduce your taxable income. For 2022, single filers get a $12,950 standard deduction; it’s $25,900 for married couples filing jointly. (In 2023, those numbers rise to $13,850 for single taxpayers and $27,700 for married filing jointly.)

Reduction in Required Minimum Distributions (RMDs)
Another benefit of taking qualified charitable distributions is that they count toward your annual required minimum distribution (RMD) — the minimum amount that you must withdraw from many IRAs (except Roth IRAs) each year. RMDs start when you reach age 73, starting in tax year 2023, as determined by the SECURE 2.0 Act of 2022. Previously, the RMD age was 72.
The problem with taking RMDs from traditional IRAs (and 401(k)s as well) is that they increase your taxable income. Depending on your situation, they can push you into a higher tax bracket. Using qualified charitable distributions could fulfill all or part of your RMD requirement without increasing your taxable income. The maximum annual amount that you can take as QCDs is $100,000. (Note that 401(k)s and other qualified plans also have RMD requirements, but you cannot take a QCD from those savings vehicles.)

Don’t forget to check your state: While a QCD is not subject to withholding on your federal income tax return, state tax rules may differ. Ask a tax professional or your state income tax office for specifics on QCDs in your state.

Pros and Cons of a Qualified Charitable Distribution (QCD) 

A qualified charitable distribution can be a great tool in managing your retirement assets, but there are some drawbacks as well. 



What is the Benefit of a Qualified Charitable Distribution (QCD)?
A QCD could reduce your adjusted gross income, meaning that you could pay less in income taxes. 

Is a QCD an Itemized Deduction?
No, you don’t have to itemize deductions to deduct a QCD. 

How Much Can I Donate Through a QCD?

The maximum annual limit for QCDs is $100,000.
Do All Charitable Organizations Qualify To Receive a QCD?

No. The charity must be a 501(c)(3) organization that is eligible to receive tax-deductible contributions. Private foundations, for instance, are not eligible for QCDs. It’s important to verify that the charitable organization to which you want to donate is an Internal Revenue Service (IRS)-approved charity. The IRS has an Online Search Tool that can help.

Tejal Dhruve, CPA, LLC, a full-service tax and wealth management firm with offices in Wesley Chapel, Florida, and Dublin, Ohio, can be reached at (614) 742-7158 or email info@dhruvecpa.com

Estate Planning for Newlyweds


Estate planning might sound like something only your wealthy great-uncle Frank has to worry about. You may wonder how your worldly possessions could possibly qualify as an “estate.” Believe it or not, almost everyone needs to take care of some basic estate planning, especially newlyweds. Most newlyweds don’t want to think of the possibility of losing their spouse, but the fact is that losing your spouse could be an even worse experience without the proper estate plan in place.

If you only do the bare minimum of estate planning, make it a will. In your will, you can leave your property to your spouse or whomever else you’d like. You should also determine secondary beneficiaries in the event that both of you die at the same time. Your will should name a designated executor, the person responsible for making sure your wishes are carried out.
Without a will, your property is at the mercy of your state’s laws. Depending on which state you live in, this could leave your spouse out in the cold. Additionally, if you have children, your will should designate guardians in case you and your spouse die at the same time.

Avoiding Probate
While creating a will is a great first step in estate planning, it cannot help you avoid probate. Probate is the process of executing a will, and it can take months or even years, and cost up to 5 percent of the value of the estate. The time and money involved in probate is probably not what you had in mind for your beneficiaries. If you live in a community property state, your property will automatically transfer to your spouse at the time of your death (unless noted otherwise in your will or prenuptial agreement). In a common law state, however, you’ll have to make sure that you and your spouse hold large property in “joint tenancy with right to survivorship.” This will ensure that your spouse automatically acquires ownership upon your death.
Another method of avoiding probate is the use of living trusts. A trust is a separate legal entity that holds property, so anything within a trust is exempt from probate upon your death. Marital trusts are trusts that address the specific needs of married couples. There are several types to choose from, with options for various circumstances.

Prenuptial and Postnuptial Agreements
A prenuptial agreement is a contract made between two people before their marriage begins. A postnuptial agreement, as the name suggests, is created after the marriage takes place. Both agreements generally specify what property is held While creating a will is a great first step in estate planning, it cannot help you avoid probate by each party prior to marriage and how that property will be divided in the case of divorce or death of one spouse. Prenuptial and postnuptial agreements are especially useful for couples where one party owns a business, has children outside the marriage or has considerable property from before the marriage. These agreements can be helpful in determining property ownership, especially for couples living in a community property state who do not want all property evenly divided, or vice versa.

Beneficiary Designations
Certain property can be passed directly to beneficiaries without the use of a will or trust. For instance, life insurance benefits, retirement plans and bank accounts can all be left to your spouse when you die, as long as you name him or her as the account beneficiary. When you designate a beneficiary, your account becomes “payable on death,” thus avoiding probate court and fees. If you don’t want to leave an entire account to your spouse, you can split up the assets among various beneficiaries. It’s also a good idea to list secondary beneficiaries in case the primary beneficiary also dies. Naming beneficiaries on your accounts is fast and can be done without the help of a lawyer.

Living Wills
Your estate plan is not only a plan for your death, but also in case you were to become incapacitated. It’s important to determine what should happen to you and your property if you become unable to communicate or make decisions for yourself. A living will can specify health care treatments you do and do not want, and how you’d like to be treated in the hospital. For instance, do you want to be kept on life support? Do you want to be fed through a tube if necessary? Will you donate your organs? When and if the time comes, you won’t be able to answer these questions yourself. Avoid putting the decision-making burden on your spouse by listing your wishes in a living will.

Your estate plan should also include a power of attorney designation, which is the person to make decisions for you if you become unable to do so yourself. You’ll probably assign your spouse with power of attorney, because he or she is most likely to know your wishes. Even if you have a living will, your power of attorney can make decisions that aren’t specified there. For instance, the power of attorney can make financial decisions such as paying your bills or managing your money. You can invoke the power of attorney even if neither spouse becomes physically or mentally incapacitated — if one of you is out of town, for example, the other can sign important documents and make decisions on his or her behalf.

There are two major myths about estate planning. The first is that it is a grueling, depressing process. Getting your estate in order does not have to be difficult to complete. If you are relatively young and have a small estate, the process should be quick and can even bring couples closer to each other. The other myth is that your estate isn’t large enough to warrant an estate plan. If you’d like to override the state laws pertaining to property ownership, or if you’d like to ease the burden on your spouse in the event of your death, estate planning is definitely for you.

This article was written by Advicent Solutions, an entity unrelated to Prudential. Material is provided courtesy of Prudential Advisors. “Prudential Advisors” is a brand name of The Prudential Insurance Company of America and its subsidiaries. Prudential and its representatives do not give legal or tax advice. Please consult your own advisors regarding your particular situation. ©2019 Advicent Solutions.

Seema Ramroop, financial planner at Prudential Advisors, can be reached at (813) 957-8107 or email seema.ramroop@prudential.com

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