RMD to charity vs taking RMD then donating to charity

Submitted by Pete Holzgang on Mon, 2013-11-18 15:48

Can someone explain if it’s more beneficial to make a RMD direct to charity vs taking the RMD and then making the charitable contribution. On the face of it I would think it would be a wash assuming that one itemizes deductions. Am I missing something?

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Permalink Submitted by Alan - IRA critic on Mon, 2013-11-18 16:51

Yes. While there may be a small minority of taxpayers for which this is a wash, most taxpayers would experience a larger tax savings by making a QCD. Here are some of those advantages:
1) Most seniors cannot itemize due to lower expenditures, particularly mortgage interest and higher standard deductions. If you DO itemize, the full benefit of a charitable deduction only results when the itemized deductions exceed the standard deduction by at least the full amount of the contribution.
2) AGI does NOT increase with a QCD, while it does with no QCD and itemizing. This can result in much less SS benefits being added to AGI for those who already do not have 85% of SS included. Also, there are itemized deductions with a % limit floor such as medical expenses (7.5% going to 10%) and many misc deductions (2%) which are reduced when AGI rises. Could also be some AMT impacts. Some tax credits are reduced or eliminated with higher AGI.
3) For IRA owners with basis, a QCD taps all pre tax amounts first, leaving the basis for non QCD distributions which will then reduce taxes on future non QCD distributions.
4) Iteming charitable contributions is subject to a % of AGI limit based on type of recipient. Contributions that cannot be itemized in the year of contribution must be carried over, and expire eventually.
Higher earners are again subject to itemized deduction phaseout and exemption phaseout.