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October 22, 2013

Replace your RMD with a Qualified Charitable Distribution

The American Taxpayer Relief Act of 2012 (ATRA) brought significant changes to many taxpayers.  As 2013 draws to an end, high-net worth individuals should take note of the provision in ATRA which extended the qualified charitable distribution (QCD) rules to 2013.

A QCD is an otherwise taxable distribution from an IRA owned by an individual age 70 ½ or over that is paid directly from the IRA to a qualified charity.  These distributions allow taxpayers to exclude up to $100,000 from gross income and satisfy their annual required minimum distribution.

You may be wondering if the newly enacted tax laws make this caveat in the tax code more powerful than it was in years past.  The answer is YES.  Here’s why:

  • The return of the Pease limitation reduces itemized deductions for single filers with adjusted gross income (AGI) over $250,000 ($300,000 if you’re married ) by 3% of their AGI.  If you’re in this situation, taking a $100,000 RMD in the form of a QCD saves you from a $3,000 haircut on your itemized deductions.
  • If the use of a QCD keeps your taxable income below $400,000 ($450,000 if you’re married) you will avoid taxation at the new 39.6% federal tax rate and the 20% dividend and long term capital gain tax rate.
  • Keeping your AGI below $200,000 ($250,000 if you’re married) will help you to avoid the new 3.8% Medicare surtax on investment income.

Please contact your Anders tax advisor if you’d like to discuss the most tax efficient way to satisfy your 2013 RMD.

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