November 1, 2024 in Stewardship
Why should you donate to charities directly from your IRA?
Our Synod Generosity Team is sharing the following article as a way to help you use your money wisely in saving and in giving. If you are over 70 years old and have an IRA, here is some good advice.
Why should you donate to charities directly from your IRA?
Do you donate to Churches or Charities? You may do it as part of your beliefs, faith, or values. Often gifts are made with the hope of reducing a tax burden, but for most folks charitable giving no longer provides much if any tax benefit. Is there a way to recover some of that tax benefit?
It doesn’t seem like there would be a difference between taking money from your IRA putting it in your checking/savings and then sending it to the charity or sending it directly from your IRA. But there is a big difference. If you are over 70 years old and have an IRA you can use it to make charitable donations. You can request a QCD(Qualified Charitable Distribution) from your IRA, the check will be paid directly to the 501c3 non-profit of your choice. In 2024 the max is $105,000 of QCD from your IRA. Why does this matter?
When your taxes are prepared the Standard Deduction is compared to your Itemized Deductions. Whichever is the larger is the one you will deduct. The Standard Deduction has risen so much that many no longer benefit from itemizing, for 2024 it is $29,600 for a couple Married Filing Jointly. If you add up all your itemized deductions and they aren’t more than $29,600 you take the standard deduction. The biggest itemized deductions are State and Local Taxes (SALT), Charitable Giving, and Mortgage Interest.
- Making regular charitable donations:
- You are limited to $10,000 of SALT a year which includes property taxes. Most retirement income in PA is not taxable, so you may only have property tax to deduct. Assuming you pay $8,000 in property taxes, you could add that to your itemized deductions.
- If you give $5,000 to church and another $1,000 to charity, you include $6,000 in charitable deductions.
- If you have paid off your home you may not have any mortgage interest.
- Most medical plans provide enough benefit that people can’t deduct the expenses. It is only those in Long Term Care that can.
- Total Itemized Deductions in this example would be $8,000+$6,000=$14,000. If you are Married Filing Jointly you would need an additional $15,600 deductions to make it worth itemizing and you still wouldn’t get a tax break. Even if you gave an additional $15,601 you would only get the benefit for the $1 extra dollar.
- In this case you would take the Standard Deduction of $29,600. The standard deduction reduces your tax by $29,600*22% or $6,512 of federal tax.
If you use a QCD for charitable giving that amount reduces your taxable income. Using the numbers from above and assuming someone is in the 22% tax bracket and has $100,000 of income it looks like this:
- Using the QCD
- You still take the standard deduction and save $6,512 in federal taxes.
- Use a QCD to give $6,000 over the year, then you would save an additional amount of $6,000*22% which as an additional $1,320 in federal taxes you save.
- Additionally, Medicare bases premiums on your income. If your income is over a certain amount your Medicare costs can rapidly increase. By using a QCD you can keep your income lower while still giving the same amount and possibly qualifying for a lower premium and paying less in tax.
In this example if you make a simple change to the way you give you could save $1,320 in federal taxes. That can either increase your retirement income, preserve assets for future use, or allow you to give more to the charities you support.
If you are looking for a way to make your charitable giving go farther, or are trying to reduce your taxes, you should reach out to your tax professional to get the advice you need to help you. You also can reach out to me, Guenter Wesch CFP®, either at or 215-970-7271. I prepare taxes and am a Financial Advisor. There are additional strategies such as donor advised funds that can provide additional tax breaks for some taxpayers regardless of their age.
This is an example of how using a QCD may be beneficial, but each person’s situation is different, and you should not take this example as tax, financial, or legal advice. Please consult a professional about your specific situation. Please do not reproduce this article or share it without the disclosure below.
Advisory Services are offered through RCK Wealth Advisory LLC, a Registered Investment Advisor in the Commonwealth of Pennsylvania. Insurance products and services, Tax, Accounting and Bookkeeping are offered through RCK Wealth Management PLLC., an affiliated company. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S.
Guenter Wesch
Owner
p: 215-970-7271
www.rckwealth.com
21 E. Lincoln Ave, Suite 250
Hatfield, PA 19440
Guenter Wesch is an Investment Advisor Representative offering Advisory Services through RCK Wealth Advisory LLC, a Registered Investment Advisor in the Commonwealth of Pennsylvania. Insurance products and services, Tax, Accounting and Bookkeeping are offered through RCK Wealth Management PLLC., an affiliated company.
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