Withdrawal Strategies: Charitable Contributions After Age 70.5Submitted by Mission Financial Planning on October 15th, 2014
After age 70.5, your IRA can be used to make a charitable contribution.* [click here to learn more about Required Minimum Distributions] The charitable distribution can be part of one’s Required Minimum Distribution (RMDs are now required at age 72). With "Qualified Charitable Distributions" (QCDs) an owner directs their distribution straight from their IRA to a charity, keeping the distribution out of the taxable income calculation and essentially off the tax return.
By bypassing the tax return, taxable income is decreased and no taxes are due on the IRA withdrawal. However, because the contribution is already excluded from taxable income, it is not tax deductible.
On the surface, directing pre-tax dollars to a charity has the same benefits as contributing after tax dollars, then taking the tax deduction. However, keeping income off the tax return may help you stay under various income levels or thresholds that could trigger additional taxes or push you into a higher bracket.
The charitable contribution can be counted as part of the RMD, helping reduce the tax consequences of RMD distributions. With the recent adoption of the SECURE Act, special rules about cumulative contributions apply in the years before age 72.