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qcd vs rmd san diego financial broker

QCD vs RMD

Do you remember Sunday mornings when your Mom or Dad would give you a quarter which you were to put into the collection basket at Church? Technology has come a long way and now you don’t need to put your cash or check in the basket because many Churches provide online giving. You can sign up for direct deposit to the Church collection account from your bank account or even your credit card. How about that, earning air miles or cash back rewards for making a charitable contribution, but is there a better way you can provide your Church with a larger annual contribution? Yes!

Let me share a really awesome charitable strategy that may prove to be beneficial. It’s called a Qualified Charitable Distribution (QCD). You may already know you will be required to take a distribution annually from your Traditional IRA account when you turn age 70 1/2. This is referred to as your Required Minimum Distribution or RMD, but did you know you can make a direct distribution from your retirement account to a qualified Charity of your choice? When you elect this strategy, the distribution will occur as a non taxable event and the QCD to a qualified Charity will satisfy your RMD for that year.

Take a look at this hypothetical example using an IRA with account value of $100,000:

If you turn 70 1/2 this year, your approximate RMD would be $3650 ($100,000÷27.4), Calculation derived by dividing prior year (Hypothetical IRA) account ending balance on December 31, value = $100,000 by 27.4, (27.4 is found on the IRS Uniform Lifetime Table II), (2019). When you take your RMD of $3650, you will have to pay tax on the distribution, “The account owner is taxed at his or her income tax rate on the amount of the withdrawn RMD” (2019). Many custodians will automatically withhold 10% Federal tax unless you specify no withholding, and under this assumption you would only receive $3284 ($3650 – 10%). However, if you instruct your account custodian to make the distribution directly to your qualified Charity, the Charity organization will receive the full $3650. No tax is due.

So let’s assume you make weekly contributions to your Church. Continuing with our hypothetical $100,000 IRA account example, if you elect QCD, you would essentially be contributing approximately $70 per week ($3650 ÷ 52 weeks). If instead you first take your RMD and pay 10% tax, then dog ear the money that year for contributions to your Church, this would equate to only $63 per week ($3284 ÷ 52). If you elect QCD, your Church receives an additional $365 per year and you don’t have to keep writing a contribution check each week. Nifty strategy.

The opinions expressed in this (article) are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to accuracy or completeness.

The above example is a hypothetical and for illustrative purposes only. Please note that each person’s situation is different. Please consult your financial or tax professional regarding your circumstances.

Reference:
“Retirement Plans FAQs Regarding Required Minimum Distributions: Internal Revenue Service.” Retirement Plans FAQs Regarding Required Minimum Distributions | Internal Revenue Service, 2019, www.irs.gov/retirement-plans/retirement-plans-faqs-regarding- required-minimum-distributions.
Www.irs.gov, 2019, www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf.

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