QCD vs Traditional Charitable Donation
Is there any tax advantage in using QCD vs traditional charitable donation (Schedule A deduction) for the same dollar amount equal to less than the RMD?
Another potential advantage of using QCDs instead of itemizing charitable deductions is income-related Medicare premium adjustments (referred to as IRMAA). Making donations via QCDs lowers Adjusted Gross Income (AGI), which is a factor used in determining Medicare premium adjustments, while itemizing charitable donations does not lower AGI. Charitable donations deducted as itemized deductions will lower Taxable Income, but not AGI. And remember, IRMAA premium increases are not phased in over a range of income, they are a “cliff”, so just $1 over each IRMAA threshold means that Medicare premium increase will be in effect for the applicable year.
I can’t think of any disadvantage of using QCDs when eligible if the goal is making tax advantaged donations from a Traditional IRA.
Permalink Submitted by Alan - IRA critic on Mon, 2024-06-03 23:50
There is a huge tax advantage for a QCD if the taxpayer does not have enough itemized deductions prior to the donation to itemize. But there might also be a smaller tax advantage even if the taxpayer can itemize the entire donation because a QCD will reduce AGI for which other tax limits could be phased out. A QCD is also not subject to the % limitations based on AGI that a non QCD donation is. The only limit for QCDs is 105k per taxpayer.
Note that QCDs should be completed before the total RMD is completed if the QCD is intended to reduce the taxable amount of the RMD. QCDs done after the rest of the RMD has been completed will not be taxable, but neither will they reduce taxes on the rest of the RMD.