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  • Daniel Levinson

A Positive, Philanthropic Development in our Otherwise Mind-Numbing Tax Code

This week, we seek to entertain you with a positive development in our otherwise mind-numbing tax code.  Insomuch as charity is deeply seeded in our firm’s culture, let’s discuss a terrific philanthropic incentive passed by Congress earlier this year.


Dear Clients & Friends,


In the last few months, I’ve passed the Weekend Reading baton to other family members here at MOR Wealth Management.  Recently inspired by this development, today Dan Levinson takes the keyboard to enlighten us in the spirit of giving.


Several of our staff and I were in Austin, Texas, 2 weeks ago for a national industry conference. During our 4 day stay, we gained invaluable continuing education, industry knowledge, as well as updates on Congressional developments.  We also consumed a comical amount of delicious BBQ, which is a topic for another day. During a seminar on philanthropic giving, I learned that Qualified Charitable Distributions have now become a permanent part of our tax code, which is excellent news for all of our wonderful community minded and philanthropic clientele.


Qualified Charitable Distributions, or QCDs as we shall henceforth refer to them, are IRA distributions made directly, without an intermediary, to a qualified charitable organization. QCDs were originally created with the Pension Protection Act of 2006; however the rules lapsed after 2 years. After having been extended on-and-off over the past decade, Congress finally made QCDs a permanent part of the tax code through the “Protecting Americans from Tax Hikes Act of 2015” (And yes, that’s really what the tax act passed last year was called). Now that QCDs are here to stay, let’s learn a little bit about them.


For those of you with IRAs, who are above the age of 70 ½, you are probably familiar with the concept of RMDs, or Required Minimum Distributions. The IRS requires you to take a minimum distribution from your IRA for each year that you are above the age of 70 ½, which is added to your Adjusted Gross Income (AGI) and proportionately to your tax bill. Now, with the level of giving that our clients are accustomed to, we all know that the IRS allows a deduction of up to half of your adjusted gross income (AGI) for charitable gifts. QCDs allow us to distribute money from your IRA directly to a qualified charitable organization, satisfying the RMD for the current year andavoiding raising your AGI by the amount of said distribution. There are several advantages to making a QCD rather than taking a distribution directly to yourself and then subsequently writing a check to a charitable organization, which we will explore, but first, let’s take a look at who qualifies.


First of all, QCDs can only come from Traditional, Rollover, Inherited, SEP, and SIMPLE IRAs. This, unfortunately, means that your Roth IRA does not qualify. You must be of the age 70 ½. The distribution must come from funds that were pre-tax contributions, and may not exceed $100,000 in any given year ($200,000 if you and your spouse file jointly and both choose to implement this strategy). Funds must be distributed by the RMD deadline of December 31st of the current tax year. Finally, the distribution must be to a registered 501(c)(3) organization that is not a private foundation, supporting organization, or donor-advised fund.


On to the advantages. As mentioned previously, IRA distributions are added to your AGI. For retirees, this can have an impact on the taxes of your Social Security benefits and your Medicare premium. Your Medicare premium is a flat rate, meaning once you are in a higher rate class, your entire premium is affected! For a couple who are both on Medicare, and earn $214,000 per year, an RMD could increase their combined Medicare premium by over $1,750 per year! Furthermore, the amount of your QCD is not included in your charitable gift limit. Therefore you can deduct more than half of your AGI for charitable gifts in any given year if some of the gifting is in the form of a QCD.

Clearly the impact is substantial, especially if you are a philanthropic-minded individual taking IRA distributions. This weekend’s topic is a bit more complex than usual. I hope that it provides a bit of insight regarding an important and impactful development within our federal tax code.


Dan





















Needless to say, we are profoundly excited that this charitable incentive is now a permanent part of our tax code.  For several years, we’ve assisted clients with QCDs.  Assuming this development may inspire more of our clientele to elevate their philanthropic giving, we are excited to assist in analyzing its effect for anyone interested.


Before we sign off, I will answer the question you are already ready to ask- is any of this relevant given our president elect?  Our answer is: In 2016, yes, because inauguration is not until next year.  And in the long term, it’s probably still relevant because Mr. Trump likes lower taxes.


So for the time being we celebrate in the spirit of community-mindedness, and we wish all of you a lovely weekend.


Matt



Matthew Ramer, AIF® Principal, Financial Advisor MOR Wealth Management, LLC

1801 Market Street, Suite 2435 Philadelphia, PA 19103 P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |

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matthew.ramer@morwm.com | www.morwm.com

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