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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

QCD from IRA: Save Big on Taxes While Helping Charity

Understanding QCDs, or Qualified Charitable Contributions can save you big on your taxes. As a practical matter, there are important reasons to do QCDs before December.

Many people know that at a certain age, the law requires you to take RMDs, or Required Minimum Distributions out pre-tax accounts.

But did you know there are ways to take Required Minimum Distributions, or RMDs, and pay no tax at all? It sounds to be too good to be true, but the IRS explicitly approves this and has a rule for it.

In this episode you’ll learn:

1. What the rule is

2. Who the strategy is best suited for

3. How you can implement this in your planning.

Don’t wait until December to take advantage of this.

00:00 Welcome!

01:10 Advantages of doing QCDs

02:15 Qualified Charitable Distribution Defined

03:40 More details

04:43 When does this make sense? John’s take

05:44 Bridget’s take QCD and itemized Deductions

07:29 John’s basic rule

08:05 Pragmatic / Logistical factors


John: Many people know that when you reach a certain age in retirement, the IRS forces you to take money out of your pretax retirement accounts and pay taxes on those withdrawals. But did you know that there's a way you can take out these required minimum distributions and pay no taxes at all? It sounds too good to be true, but the IRS explicitly approves this and has a rule for it. By the end of today's episode, you're going to know what that rule is, who it's best suited for, and if you fit that profile, how you can implement this in your planning. Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I run a fee-only financial planning practice in Chicago, Illinois. And John, before we get going on taking tax free distributions from IRAs, we just want to remind people to subscribe. If you hit the subscribe button, it helps us reach more viewers on YouTube and helps us help more people.

John: That's right.

Bridget: Let's get right into this.

John: I'm looking forward to this. How do we take advantage of tax free distributions? It sounds like a limited time only deal: “Hurry up! But wait, there's more.” And still, this is one of those things that is in fact tax-free money. It's explicit in the IRS laws. And it's interesting—we were talking just a little bit before we hit record here—that not a lot of people know about this, and it can be a really big tax savings method.

Bridget: Absolutely. We have clients that take advantage of this all the time. But we're doing this episode now, and we're going to release it in November, because we don't want people to wait until December to take advantage of this. And we'll explain the reasons why we like you to do this earlier, not at the very end of the year, even though it is charitable contributions.

I think about a third of all the charitable contributions are made in December, (I don't know if you knew this, John) and most of them are in the last week of the year, but we don't want you to wait until the end of the year. So John, let's get into this.

John: Yeah, you gave the foreshadowing there. What we're talking about with this is making what's called a qualified charitable distribution. And when we get into the jargon police, it's a QCD in the fancy language. But what this means is that when you're taking money out of your IRA—if you qualify, and we’ll talk about that in a minute—and giving it directly to a charity, there's no taxes that are due on that. And the IRS allows us to do this.

It's written in that for people who have to take these minimum distributions—and they changed the law right now to say that at 72 you have to start taking money out of your IRA account—you can take that money, and you can give it to your church, you can give it to United Way, or whatever nonprofits you give to, and that never shows up on your tax return. It's completely tax free.

And if you think about what this means, right, I put money into my 401K or my 403B or my IRA, and I got a tax deduction while I was working. Now I'm retired, and I can take that money out and give it to the charities of my choice and not pay taxes. The charity doesn't pay taxes. It's one of the few ways we can have really, truly tax-free money and help to accomplish some of our goals.

Bridget: Absolutely. And it grows tax free while it's in your IRA, too, or your 401K, too, so it's really an awesome program. Let's get more into the details. There's another part, too. You need to make required minimum distributions, or RMDs (more jargon police), when you're 72, but a QCD or a qualified charitable distribution is available to you if you turn 70 and a half during the year. So there's that point when you don't have to make RMDs yet, but you can take QCDs.

John: Right.

Bridget: There is a year and a half where you’re not required to make distributions, but if it make the most sense to make your charitable contributions from your IRA, then we want to get you going on that.

John: And that comes from the old law. Some people might remember that it used to be that you had to take money out of those IRAs starting at 70 and a half. And that's why they said, “Hey, if you want to be charitable, we'll let you do it.” Thus, they changed the rules for when you have to take money out, but they didn't change the charitable side of things. So that's sort of the scoop. That's what happens. You can take money from your IRA, give it to charity, no taxes at all.

So where does this make sense? There’s sort of two components, as I see it. I'll be interested to hear what you have to say, Bridget, but there are two places where I recommend people do this is. Number one: if you don't need the money out of your IRA. Of course, if you're spending money and your IRA is your source of cash flow this is not a big deal necessarily. And then the other place is if you’re already giving to charity, if you're already giving to your church or to United Way or whatever your charity is, then this makes sense.

If you're not, when you give this money away, you are giving it away. You're not using it yourself. It's still a great tax deal. You avoid all the taxes, but it's got to reach your charitable goals and your goals for giving back, not for personal use. So those are sort of the two areas where I say, “Listen, if you don't need the money and you want to give to charity, this is a place where it fits.” How do you describe that? How do you talk about it with folks?

Bridget: I look at it pragmatically as a tax strategy as well. And I think of it in terms of if you're giving away money and you're not itemizing. So itemizing on taxes is when you get charitable contributions to count as an itemized deduction. But after they changed the tax law several years ago, a lot fewer people itemize now. I think it's probably only 10% or 20% that itemize, because they raised the standard deduction.

And so, people get more that way, so they don't itemize. So if people don't itemize, then this is especially attractive if they're over 70 and half and give money to charity or they just have a lot of money in their IRAs, and they need to take the money from somewhere to give money away. So it's an effective place to do it. But I also want to make it clear that you can't double dip.

John: Great.

Bridget: You can't use your IRA to make charitable contributions and then take that same contribution as an itemized deduction. It's got to be one or the other.

John: Yeah. You either avoid taxes on the distribution or you pay taxes on the distribution, and you avoid taxes on your tax return. Not both situations. That's right. And that tax law change is very interesting. I always forget the exact numbers, but it's something like $26,000 for married folks and something like $13,000 for single folks.

If your deductions from things like your mortgage interest and donations to charity are above those limits, then it might not make much difference how you do your donations. If you're below that, it does. I sort of take the approach that if you fit the profile right, you're over 70 and a half and you want to give money to your church or to other charities, this thing from the IRA is at worst not going to hurt you, and at best it's going to be a super good deal.

Bridget: Right.

John: That’s my approach, at least generically. Of course, your mileage may vary based on the specifics of your situation, but it doesn't hurt you if you fit those two things to say, “Listen, I want to target giving to charity from my IRA rather than from my personal checkbook.

Bridget: Right. And so, let's talk a little pragmatics here. I think there's a maximum that you can actually contribute out of your IRA, if you're over 70 and a half, to charity every year. I believe it's $100,000.

John: That's what I have. Again, one of those numbers you can look up right, but it's a pretty big number.

Bridget: Right. So that's something to be mindful of. Another thing is that you have to give the money directly to the charity. So you can't tell your custodian, “Hey, give the money to me, and then I'll give it to charity.” It has to go directly to the charity. And so, that means that you have to have that information; you have to make that happen. And so, charities generally want to help you make that easy. However, there's a cool thing that a lot of people don't know about.

We work with Schwab—they are my custodian at my firm—and they will give clients a checkbook from their IRA, so that the client can directly write a check from their IRA to that charity. And you have to order the checkbook, so do that right away, but the other factor is that sometimes it takes these charities a while to deposit their checks, so that's why we tell people not to try to do this in December, because a lot of charities are somewhat delayed about actually letting the check clear, and it should be cleared before it really counts as a required minimum distribution. So I like to tell people not to do this in December but make sure you do it by the end of November.

John: Yeah. Those are great. I learned that checkbook trick from you. There're other ways you can do it. We have had people go online, fill out the charity form, call and get it. There're other ways to do it for sure, but the checkbook thing from the IRA is a super idea. We also use Schwab at our office, but I assume most of the major custodians, if you have your money at wherever it is, can help you with that. And the other thing is, like you just said, we've had some experiences where you write a check and then it doesn't clear, they don't deposit it until January, and now you got this mess, so try to get it all done early.

And that's a good reminder that making your minimum distributions is a calendar year thing, which is especially important if you need to make those minimum distributions. It's a December 31 thing, not a tax deadline, not April 15 thing. So this is a timely thing. If you're making these donations, make sure you take a look at getting that out and getting the charities to deposit those checks by December 31.

Bridget: Great. So I think this is a great place to wrap it up. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer, and I have a fee-only financial planning practice in Middleton, Wisconsin. Before we leave don't forget to hit that subscribe button. That helps other people find this content on YouTube.

And Bridget and I are both members of the Alliance of Comprehensive Planners. If you like what you hear on our show and you want to talk to somebody who takes a tax-focused, comprehensive approach to financial planning, check out And with that, until next time,

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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