Case Study: Howard Uses a Tax Ruling for Seniors

| April 18, 2017
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TAXES, CHARITABLE PLANNING

Howard, age 70 ½, has started taking his Required Minimum Distribution (RMD) from his IRA. He also has a favorite charity that he loves to donate money. Unfortunately, Howard is not able to fully deduct his contribution. What’s wrong with this picture?

Here’s the problem: Howard is taking his RMD and then separately making the donation to his charity. The RMD inflates his adjusted gross income (AGI), could put him in a higher tax bracket, and it could also increase the amount of his taxable Social Security benefits. If Howard uses the standard deduction or his charitable deductions are limited by his AGI, then he could lose all or some of the charitable deduction.

Here’s the fix: Last year Congress made the Qualified Charitable Deduction (QCD) from IRAs permanent. A QCD allows for people over the age of 70 ½ to make a direct distribution from their IRA to a qualified charity, without owing any tax on the distribution.

Howard should have his investment company make the distribution to the qualified charitable organization, as opposed to him. The QCD is not included in income and he doesn’t need to jump through hoops to take the deduction. Howard can make up to $100K of QCDs annually.

Can Howard have distributions from his IRA go to himself and to multiple charities? That’s up to the institution he is working with. It’s worth looking into if you are taking RMDs and gifting to a charity.

If you have any questions about QCDs, please contact me.

Disclaimer: The above scenario represrents a hypothetical case scenario and does not reflect informatin related to a real client of Sage Path Solutions. Sage Path Solutions does not provide individual tax or legal advice. Clients should review tax and legal questions with their own tax and legal advisors. For more information, please refer to Laurel Wealth Advisors, LLC most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.

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