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The Perks of Getting Older

Dear Clients and Friends,


Charitable giving is an important aspect of your financial plan, especially here

at MOR Wealth Management. Despite pandemics, natural disasters, and

humanitarian crises, Americans desire to lend a hand has grown into a

steadfast tradition. The Lily Family School of Philanthropy states that

individuals, foundations, bequests and corporations gave an estimated $499.3

billion to U.S. charities in 2022!


You don’t need to have a tremendous amount of wealth to donate to a just

cause and make a positive impact - every dollar counts. However, the “how”

you make your donations is an important technical piece of your tax

strategy. As the title of this Weekend Reading states, there are certain

advantages that come with getting older - including the ability to make

Qualified Charitable Distributions, or “QCDs.”


A QCD allows individuals aged 70.5 or older to donate directly from their IRA

(inherited or not) to one or more charities (the charity must be a 501(c)(3)

organization). Most charitable gifts are tax deductible but using this “QCD”

method bears a slight advantage in addition to regular deductibility, which we

discuss below. The tax benefit is capped at $100,000 worth of donations per

person per calendar year and becomes indexed for inflation starting in 2024.


Required Minimum Distributions – Regardless of whether you need the funds

or not, the IRS does! You’re required to begin withdrawing funds from your

pretax retirement accounts at age 73 because you’ve never had to pay taxes

on that money. Instead of taking your RMD, you can donate those funds from

your IRA directly to charity: the donation will count towards the required

minimum amount, and it will not be taxed as income, as most IRA distributions

are. Let’s explore the difference between giving to charity directly from your

IRA vs. depositing your RMD into your checking account and then writing a

check to charity from there. Same thing, right? Not exactly!


If you give $100,000 directly to charity and you’re in the 37% federal tax

bracket, that’s $37,000 in tax savings from the income you don’t have to

report! If instead you deposit your RMD into your bank account, you are

effectively reporting $37,000 worth of income, which you could offset with a

$37,000 charitable gift deduction - but if you don’t itemize your taxes,

charitable gifts become non-deductible because you’re not actually deducting

anything. On the other hand, if you donate directly from your IRA, the

withdrawal does not get reported at all! So, even if you don’t itemize, you

circumnavigate the taxability of that distribution/gift.


Tax Savings – Since your RMD is considered income in the eyes of the IRS,

the additional income could potentially push you into a higher tax bracket even

if you offset this with a charitable deduction. This could result in the phasing

out or elimination of certain tax credits and deductions. The most glaring

impact could be related to the triggering of higher taxes on your Social

Security payments and elevated Medicare Part B & D premiums. The

incremental increase in Medicare premiums jumps dramatically with relatively

small increases in taxable income. See the table below if you feel like getting

sticker shock.



If you don’t itemize your tax return and instead take the standard deduction,

you would still benefit from making a QCD because this gifting method

removes the RMD from your tax return altogether. Therefore, the abovementioned

Medicare premium and social security complication would be

avoided. Since the tax cuts act was passed in 2017, it’s estimated that nearly

90% of Americans currently take the standard deduction, which makes this

QCD strategy even more valuable. To put this in context, about 12.2 million

filers deducted gifts to charity in 2021, compared with nearly 40 million in

2017, according to latest IRS data.


Making a QCD results in a multi-tiered benefit: charities receive more money,

your tax burden is reduced, you avoid the triggering of Medicare premium hikes, and more people benefit overall!


As many of you know, MORWM supports several local charities while regarding

philanthropy as a fundamental piece of our overall ethos. Here’s our Main Page

with the various charities that we passionately support. As always, if you have

any questions, or if you would like to make a QCD but aren’t sure who to

donate to or where to start, feel free to reach out.


Onward and upward,

Devin

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