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Using QCDs (the Legacy IRA) to Remove $53K Tax-Free from an IRA
After 15+ years of sending weekly newsletters, it’s rare for me to learn of something that I’ve never heard of before. This topic is one I’ve never heard of, and I think it can be useful to many clients ages 72 and older who have RMD issues.
What is a QDC (Qualified Charitable Distribution)? A QCD is a direct transfer of funds from your IRA custodian to a qualified charity. This was created in the SECURE Act 2.0.
At what age can it be used? Age 70.5 or older.
Why use a QCD?
-The payment counts towards satisfying your RMD requirements.
-The payment is NOT treated as a “distribution” and therefore keeps a client’s taxable income lower for purposes of calculating taxes on Social Security and Medicare Part B and D premiums.
If a client takes a “distribution” from an IRA and gifts it to a charity, because most people use the standard deduction (vs. itemizing), they get no tax benefit and the distribution could increase taxes on SS payments, increase Medicare premiums, and maybe subject a client to the IRMAA penalty.
What is the limit on QCD transfers?
$105,000 in 2024 (indexed to inflation going forward).
What Happens if your RMDs are not $105,000?
A QCD transfer exceeding your RMD doesn’t carry forward (can’t be applied to future RMDs). But it does decrease the value of the IRA which, in turn, will reduce the amount of future RMDs.
If you don’t use the maximum QCD amount annually, it does not carry forward (use it or lose it).
What type of IRAs can qualify for a QCD? Traditional, Rollover, and Inherited IRAs.
Who is the best candidate to use a QCD?
More affluent clients who HATE RMD payments, don’t need the money, and want to benefit a charity.
Special $53,000 split-interest gift that benefits the client
What’s more interesting than just helping with RMDs is that there is a once-in-a-lifetime $53,000 split-interest gift option that can be implemented using a QCD.
How does that work and why is that a no-brainer option to use?
Instead of simply giving money to a charity for their use, the one-time $53,000 option allows clients to make the gift through a Charitable Gift Annuity (CGA) (could also use a CRT (Charitable Remainder Trust) but the CRT setup fees for a $53,000 gift are tough to justify).
With the CGA, the charity promises to pay the donor/client back in income stream for life based on the value of the gift. This is usually secured using a fixed annuity.
Pretty cool eh? Give away $53,000 from a taxable IRA and receive back from the charity a lifetime income stream. The income stream is taxable, but the payment is spread out over a number of years (vs. a lump sum distribution subject to immediate tax).
So, unlike the normal use of a QDC where the money goes to the charity and stays there, with this $53,000 one-time use, the majority of the $53,000 gift comes back to the donor.
FYI, this $53,000 gift also counts towards RMD requirements!
Is this a good or even great marketing tool? Yep, I think so. I’ll bet if you brought this topic up to 100 clients, only a few, if any, would have heard about it.
What about local CPAs/EAs/accountants? I’ll bet most are not familiar with it.
Knowledge is Power
My motto is ‘knowledge is power’ and knowing about niche topics like this will help you show more value to clients and hopefully facilitate new business and referrals.
Roccy’s 2-Day Education/Marketing Seminar is Coming to Southern CA
To DOWNLOAD Orange County, CA, agenda and sign-up form, click on the following link:
https://advisorshare.com/orange-county-seminar
Open Up New Markets…Increase Revenue… Provide Better Advice…An Excuse to Get Out of the House!
