be even more philanthropic. And between the Salvation Army bell ringers outside of stores, to
organizations having toy drives and food drives, there are certainly a lot of chances to extend
generosity, especially at this time of year. The philanthropic spirit is in the air.
But in case you are not totally altruistic, there is another interesting reason for you to be
generous during this important time of year. If you are retired, you can actually cut your 2022 tax
bill even as you give to your favorite charity at the end of the year.
The good news for charities is that although the economy is questionable at best, most
American adults surveyed plan to give similar charitable donations to what they did last year, a
recent Edward Jones study found.
And although most generosity does not generally come from a spirit of “what’s in it for me?” if
you are retired, qualified charitable distributions, or QCDs, are not a bad idea at this time of
charitable giving,” said certified financial planner David Foster, founder of Gateway Wealth
Management in St. Louis.
So how does this work? If you are age 70.5 or older, you are allowed to donate up to $100,000
K a year, which may count as a required minimum distribution if you transfer the money at age
72. This doesn’t exactly provide a charitable deduction, but the benefit is that the QCD will not
count as taxable income. Fewer people itemize their tax returns, so it can be difficult to get
credit for a charitable gift, but this is a good way to lower your adjusted gross income. A lower
IRA balance also means smaller required minimum distributions in the future.
“That’s important because [higher] adjusted gross income often triggers a lot of other tax
ramifications,” said JoAnn May, a CFP and CPA who founded Forest Asset Management in
Berwyn, Illinois. For instance, higher gross incomes could hike up Medicare Part B and Part D
One of the biggest issues with QCDs is the transfers aren’t separated on Form 1099–R, which
reports retirement plan distributions to the IRS. “For example, if you withdraw $50,000 in a year
and $20,000 is for a QCD, the form will still report $50,000 in total distributions, even though
only $30,000 is taxable income,” Foster said. People need to keep track of the charitable giving
deductions themselves. The IRA payment must also be made out to the charity. A check you
write must be cleared from your IRA by December 31 to count for the year. Despite these
stipulations, QCDs are still a gift that will benefit you and the charitable recipient.
According to Adnan Zai, Advisor to Berkeley Capital, “It is a smart idea to reduce your tax bill in
this way. And to be able to help a charity that is close to your heart is definitely an added
If you move on this immediately, there is still time to give a gift that will help both yourself and
your favorite charity this year. Just make sure the check clears by December 31!